No one knows the joys and pains of investing as well as
For a while, the stock would double or triple in just a year.
In fact, the shares marched on an epic climb from $20 to $300 in
a little over two years.
But the stock also managed to plunge from $300 to $53 in a little
over a year.
Because of this extreme volatility, NFLX is a terrible
But it could be a great trade.
Another knock against buying NFLX for the long term is valuation.
The shares have a P/E ratio of 36 and a forward P/E ratio of 71,
suggesting earnings will shrink next year. Companies with
negative earnings growth can rarely command P/E ratios over 70
for an extended period.
Though valuation is important to investors, traders can largely
Moreover, the chart of NFLX appears bullish. The shares have
traded in a downward channel since April with lower highs
encountering a line of resistance depicted by the blue line
This chart shows the price of
shares along with an important declining boundary line to
Recently, NFLX broke through this line of resistance,
suggesting a rally could be forming. More importantly, the shares
are consolidating above that previous resistance zone. The 50-day
moving average (orange line) is curling higher, which may help to
provide support as well.
Between the declining channel line and the 50-day moving average,
NFLX should have plenty of support in the $60 to $65 area.
This buying pressure should be enough to bring the shares back up
to $70 (blue arrow), which has been an area of selling in the
past. However, there isn't much resistance between $70 and $85.
Over the near term, I'm looking for a rally of about 10% that
should bring the stock back to around the $70 level. With any
good news, such as a positive earnings report or an analyst
upgrade, the shares could break above $70 and back up to $85 for
about a 30% gain.
Equities mentioned in this article: NFLX