Scott Redler of T3Live
Netflix, Inc. (Nasdaq:NFLX) has been a stock I have looked to trade for momentum all year as it has made a huge move from $90 to about $208. The stock has a legion of staunch naysayers who believe it is highly overvalued (with a PEG ratio of 2.43), but it has continued to push higher. We use a tier system for entries and exits, and the stock trades very well based on technical chart patterns. I would be nervous to own Netflix as a long-term investment at this stage, but it can still provide great opportunities for active traders.
During the Netflix run, the chart has put in four days to take notice. Given the strong dissenting opinions on this stock and a large short interest, it is subject to potent moves. If you followed disciplined rules and sold on those alarming days, you could have saved yourself some pain and emotional distress. Each time we have had one of those “days to take notice”, the stock has pulled back sharply and provided an attractive area for re-entry, despite its hefty valuation.
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Most recently the stock reversed when it opened at highs and did a break out failure around $208-210 on December 1st. This was the latest signal that a correction was imminent. Furthermore, Netflix was downgraded this morning from “Buy” to “Hold” at Jeffries, and the company’s CFO Barry McCarthy yesterday announced he is leaving the company to pursue “broader career opportunities” outside the company. He will be replaced by finance veteran (not former Yankees pitcher) David Wells. The stock is opening down near the gap from November 22nd above $180, but is showing some strength this morning. I will possibly wait to see if it can get down closer to that area, and watch to see if it holds. Given the stock is about 30 points from the highs, this could be an opportunity to look for a re-entry if Netflix displays its trademark resliency. While the skeptics may get their way with Netflix some day as big media responds to its growing threat, I will continue to look to buy the dips in this stock until it proves me wrong.
