Netflix - How to Trade the Stock at Record Highs

Netflix made a powerful breakout to new highs this week. Here's what the chart for the stock looks like ahead of earnings next week.
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Netflix  (NFLX) - Get Report continues its blistering run, with shares rallying 5.3% at one point Thursday and hitting a new all-time high of $449.52.

It’s not the only FAANG stock with momentum, with Amazon.com  (AMZN) - Get Report also hitting a record high on Thursday, although Netflix remains the best-performing stock of the group this year.

Driving shares higher is a combination of investors realizing just how strong streaming video is right now - which also includes Disney+  (DIS) - Get Report and Roku  (ROKU) - Get Report - and momentum traders bidding the stock higher.

As inspiring as this rally has been, investors are likely better off trimming some profit to lock in gains rather than initiate a new position. Let’s take a look at the charts to get a better idea of what the technicals say of Netflix.

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Trading Netflix Stock

Daily chart of Netflix stock.

Daily chart of Netflix stock.

In a perfect world, trading Netflix stock would be a piece of cake. Unfortunately, rarely is it that easy. A few days ago on Monday, Netflix stock burst through multi-year resistance at $380. This is something investors should have had on their radar. On Wednesday, the stock pushed higher to new all-time highs and then did so again on Thursday. Not many were looking for this big of a move so quickly.

Netflix is scheduled to report earnings on April 21st. Most investors think of earnings as the big catalyst - and it is, for both directions - but the stock can act funky ahead of the print too.

In other words, we could get a pullback in Netflix as investors take profits ahead of what could be a volatile event or they may continue to bid Netflix higher into the report in anticipation of strong results.

Whether the stock pulls back after earnings or before (or at all), I want to look at some of the potential downside levels. Specifically, I want to see how Netflix stock trades on a pullback to the former highs near $420. If this level gives the stock a bounce, $450 is back in play.

If a pullback to $420 materializes and support doesn’t hold, it puts prior range resistance on the table near $380. Given how powerful the breakout was over this mark and how long it was resistance, I would expect it to act as support upon its first test. Just below that is the 50-day moving average and uptrend support (blue line).

Is this a guarantee that Netflix will pull back? Of course not. But I would expect the stock to cool off a bit, either ahead of or after earnings.