Netflix Comes Into Buying Range

Ed Ponsi

I recently received a question from a reader, regarding an article that appeared on July 27th. On that day, Ponsi Charts featured three charts: Apple (AAPL), Tesla (TSLA), and Netflix (NFLX). 

I want to be upfront about the fact that I'm long all three stocks. It's my goal to always remain objective. I want to provide you with the facts as I see them, and the charts as I interpret them, despite any personal interest I may have in an investment.  

I thought for certain that the question would reference this line: "If you've been waiting for a pullback to buy Apple, now could be the time." Apple closed that day at $370, and climbed above $450 in two weeks, for a gain of about 22%. 

However, the question dealt with Netflix. "Time to buy Netflix? It pulled back to the indicator you mentioned on July 27."

He's right. On August 11th (the day I received the message), Netflix touched its 50 day moving average (red line) and even closed beneath it. August 12th saw the stock hanging right on that indicator (green arrow).

NFLX
Netflix. Chart by TradeStation. 

Why does this matter? The last six times that Netflix came into contact with its 50 day moving average, the stock bounced (arrows). The most recent occurrence was on June 29th (blue arrow), and led to a gain of 27.81% in just nine trading days. 

This doesn't mean Netflix has to bounce. No indicator or technique works every time. 

That said, I don't like to chase stocks at their highs. I'd rather wait for a pullback, and that's exactly what Netflix is giving us right now. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.