Netflix Is Poised for a Fresh Bull Leg
Netflix (NFLX) - Get Report began Monday's session with a downside gap, but by the end of the day, the stock was the No. 2 gainer in the Nasdaq 100. Shares completed an impressive key upside reversal by finishing yesterday's session more than 8% above the early lows. The stock is now back to within striking distance of a very important level.
Netflix has struggled with heavy resistance just below $116 since early October. If Monday's upside momentum can carry shares past this key area, a retest of the 52-week highs becomes very likely.
In early September, Netflix began to settle into a tight consolidation pattern after a very volatile August. The stock held a key support zone during this process as the extremely overbought reading attained earlier in the month was worked off. Netflix managed to put in three straight higher monthly lows since the August spike bottom, but while this healthy sideways movement continued, the $116 area remained impenetrable.
As shares turned lower late last week, the stock had four weekly highs in place just below this level. It was becoming clear that a catalyst would be needed to resolve the ten week consolidation. Investors should be more confident of an upside breakout following Monday's performance.
Through year end, investors should remain positive on Netflix as long as the stock remains above the November low, which was set early Monday at $101.85. A close back below this level would change the set up to neutral.
On the upside, a close above $116 should be viewed as the start of a fresh bull leg that could carry shares back up to the 52-week highs near $129.50. Once convincingly past $116, this area could serve as solid support as the new rally develops. Within current support parameters, Netflix bulls should consider the stock a buy on weakness.
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Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long NFLX.