Content-streaming major Netflix (NFLX) - Get Netflix, Inc. (NFLX) Report burst back onto the scene on Wednesday, rallying nearly 12%. While the stock is down 4% Thursday, the bulls are still looking for more upside.
The Wednesday move came as other large-cap tech stocks were in focus. Salesforce (CRM) - Get salesforce.com, inc. Report was up 25% on better-than-expected earnings, while Facebook (FB) - Get Facebook, Inc. Class A Report and Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report were ripping to all-time highs.
It only made sense for one of the original FANG components to join the party. The catalyst? Apparently a survey that indicated a majority of subscribers plan to stick around even after the coronavirus pandemic.
That seems like common sense though, doesn't it?
In any regard, Netflix stock had been quietly setting up for a larger move. With Wednesday’s action, investors are witnessing a powerful breakout and forcing them to ask what might be next.
Let’s look at the charts.
Trading Netflix Stock
Earlier this month, I was looking for a big rally in Netflix stock. Specifically, I was looking for a rotation over $510, which was multiday resistance. That move didn’t come and the shares instead corrected down to the 50-day moving average.
While we didn’t get the breakout we were looking for earlier this month, it came to fruition this week. The shares rode the 50-day moving average higher for a few weeks, then broke out over downtrend resistance (purple line).
Now we’re at an interesting spot. Traders looking to initiate a new position may have a hard time doing so with a reasonable risk/reward balance. Even a decline back down to $500 still leaves Netflix stock in solid standing.
But they may prefer to wait for a possible rotation over Wednesday’s high, at $549.04. Above that puts the 261.8% extension in play up near $559, followed by the all-time high at $575.37.
If Netflix stock can clear that mark, it puts the three-times range extension in play at $598.35, followed by the $600 level.
While that seems like a long way from here, keep in mind that a rally of just 12.5% would be enough to get the job done.
On the downside, watch for a move below Thursday's low. It would suggest using caution in the short term.