Everyday after the market closes I tend to watch “Fast Money” on CNBC. The main reason I like the show is because of the diversity of stocks, markets and perspectives that are covered. In addition, even though I am not really into the fundamentals of a company, simply hearing about a particular company being discussed can intrigue me enough to take a look at the stock.
One stock being talked about yesterday was NFLX (Netflix, Inc.). For anyone that doesn’t know, Netflix provides Internet subscription services for TV shows & movies, as well as providing standard definition DVDs and Blu-ray discs. The company offers its subscribers the ability to watch unlimited TV shows and movies streamed over the Internet to their TVs, computers, and mobile devices.
Well, being that I am a subscriber to Netflix, I decided to stop and take a listen. Whitney Tilson of T2 Partners said that he was comparing Netflix to what Amazon looked like 10 years ago. “Two companies, 10 years apart, very similar — and my point is, that’s the kind of upside that Netflix has if it executes well.” Tilson also said that when Amazon held the same market cap as Netflix does now, it was taking on such competitors as Wal-Mart and held a net debt position. Netflix, by contrast, now holds a net cash position, he added.
Now, for me, the company can be the greatest thing since snowboards, but I don’t make money on good companies. I make money on good stocks, and yes, there’s a difference. So, now that Tilson has given his opinion of the company, now it’s my turn to analyze the actual stock.
After reviewing the chart of NFLX it became clear to me how to decide what the next move for the stock should be. Let’s first look at the downtrending resistance (red) I have highlighted. Always remember that when it comes to trendlines, a trader can connect any two points on a stock chart that he or she wants, but that doesn’t mean the trendline is necessarily important to the market. However, once a trendline has been tested 3 or more times the market itself is saying that the trendline is meaningful. On NFLX you can see the down trendline has been tested on 3 separate occasions and currently sits around $57.
Next, the support level (green) running along the bottom of the chart is pretty easy to see. NFLX has bounced on this $53 support level 3 different times over the last 2 months.
At some point NFLX will have to break either its downtrending resistance or the $53 support. A resistance break should lead to higher prices for the stock, while a break of support will most likely lead to lower prices. For anyone interested in entering a trade on NFLX, waiting for one of those breaks to happen should be a great entry point for either a short or long trade.
Before making any trading decision, remember to consider which side of the trade you believe gives you the highest probability of success. For example, analyze the overall market to see which direction it is trending. Making this type of decision ahead of time will help you decide which side of the trade you believe gives you the best opportunities. Regardless of your strategy, or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.
Good luck and great profits!
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