Shares of Netflix, Inc. (NASDAQ: NFLX ) are higher by about 65% for the year to date already. The company seems to be an unstoppable growth machine, and that is something to like through the intermediate to longer term still. A growth stock, however, does not have to be chased higher and bought at any price. Currently Netflix stock once again looks overly extended for the near term.
As I often point out to subscribers and coaching clients, when it comes to trading and investing it is all a question of time frames. One could be correct around a company's longer-term growth prospects, but the nearer-term price gyrations may be all over the place.
When I last discussed NFLX stock in this column on Jan. 29 I offered that it had reached historic overbought reading both in the near- and intermediate-term time frames. Specifically I wrote, "The next bearish reversal (failed intraday rally) could offer an opportunity for aggressive and quicker traders and active investors to play the stock to the downside for a 7%-10% move lower."
Two days later, on Jan. 31, the stock had a bearish reversal and over the next few sessions corrected well more than 10%.
Netflix Stock Charts
Click to Enlarge
Moving averages legend: red - 200 week, blue - 100 week, yellow - 50 week
Before digging into the daily chart, let's note that although Netflix stock corrected along with the broader market in early February, on the weekly chart things remain overbought in a meaningful way. In the first half of 2018, NFLX stock started a vertical ascent, or 'parabolic move' in technical analysis jargon, that took it out of the longer-standing up-trend as marked with the black parallels.
The weekly MACD momentum oscillator at the bottom of the chart remains in uncharted territory (overbought). While I would not want to bet against NFLX stock structurally over the longer term, ultimately there is a decent chance the stock does undergo a better intermediate-term corrective move that gets the stock back into the low $200s. Active investors however would be wise not to put on any intermediate term bearish bets until notable bearish reversals appear on the weekly chart.
Click to Enlarge
Moving averages legend: red - 200 day, blue - 100 day, yellow - 50 day
On the daily chart, note that the approximately 17% corrective move in late-January / early February did act as a mean-reversion move of sorts and thus worked off the most severe overbought readings. The stock however quickly found support on Feb. 9 and pushed higher again, proofing that buyers were giddy to get after the stock.
While NFLX stock could still push somewhat higher in the immediate term, the reward to risk on the upside is getting notably weak again as overbought readings from just about any momentum oscillator on the daily chart is nearing extremes again.
Aggressive traders could once again look to short the NFLX stock upon any notable bearish reversal (similar to late January) back toward $280 while intermediate term holders of the stock would be wise to take some profits off the table.
Check out Anthony Mirhaydari's Daily Market Outlook for March 9.
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