Buy the Dip in Netflix but Know Where Resistance Lies

Netflix disappointed at the Global Globes but the stock isn't disappointing on Monday. Here's how to trade the buy-the-dip setup.
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Netflix (NFLX) - Get Report was the worst-performing FAANG stock in 2019, but shares sure did try to end the year on a strong note.

From its September lows to its December highs, Netflix stock rallied roughly 34%. On Monday it gained another 0.9% as traders looked to maintain the recent momentum. That’s despite shares trading lower in premarket action.

While the hit to the broader markets in early trading didn’t help matters, Netflix’s disappointing haul from the Global Globes was weighing on sentiment. After garnering 34 nominations between film and television - more than any of its competitors - Netflix took home just two awards on the night.

That’s less than AT&T (T) - Get Report, Walt Disney (DIS) - Get Report and Viacom  (VIAC) . Despite this though, shares are rallying on the day. That makes it a worthy pick for Real Money’s Stock of the Day.

Now, let’s look at the charts.

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Trading Netflix Stock

NFLX

For dip-buyers, the ideal entry would be lower than current levels. That’s as Netflix stock has a very well-defined uptrend (blue line) in play, with the 50-day moving average just below it. Currently, these two marks sit at $308 and $305.25, respectively.

A dip down to this area would have given traders a much better risk/reward as bulls would know immediately whether they are right or wrong. But the current action isn’t so bad.

Netflix exploded higher in mid-December, jumping right through the 200-day moving average and stopping at $338 on the dot. That’s right around potentially major resistance at $340.

This $340 area and 200-day moving average were very strong support marks through the first half of 2019. After shares gapped lower in July, the stock fell to $305 before rallying back to former support. However, support had turned to resistance, as had the 200-day moving average, signaling that bears were firmly in control of the stock. 

So what makes the current action so good? Netflix didn’t struggle with the 200-day moving average this time and has been trying to hold this level as support. With Monday’s rally off the 20-day moving average - and off bad news, I might add - NFLX stock has reclaimed the 200-day moving average.

If shares can clear $330, then it puts the December high of $338 and resistance at $340 on the table. Should Netflix stock push through this area, it puts the gap-fill up to $360 on the table, technically speaking.

Keep it simple: Below $320 and Netflix will have lost the recent low and the 20-day moving average. That puts uptrend support and the 50-day moving average on the table. Above $330 puts $338 to $340 on the table. Hurdling that mark puts the gap fill in the realm of possibilities.