Back in late June, we featured Netflix (NASDAQ: NFLX), which, as you may be well aware, is the world’s biggest streaming entertainment provider. Known for years as a superstar growth stock, NFLX made thousands of long-term investors wealthy since going public in 2002. As of today, share prices have risen by almost 10,000%.
Pretty impressive, huh?
But back in June, Netflix’s “love affair” with bulls ended. The general market was struggling to stay afloat, and NFLX couldn’t seem to make new highs. Disney+, a competitive streaming service, was gaining momentum, and with earnings season approaching, Netflix looked like it could crumble if revenues fell short of analyst expectations.
Share prices chopped sideways as a result – trading without any true purpose or direction.
Because of that, key levels of support and resistance quickly appeared. For a stock that had enjoyed “deliberate” price action for much of its existence, this was unusual.
So, we set two trade triggers; one to go long, one to go short.
And sure enough, a few weeks later, NFLX cratered.
In the weekly candlestick chart above, you can see our trade trigger to go short (at $331.00) and the ensuing collapse that followed. NFLX shares dropped 23% from July-September, as the downside breakout was confirmed.
If you had purchased an appropriately priced and dated put option to short NFLX, your gains would’ve likely been in the neighborhood of 300%.
Not bad for trade that lasted only 11 candlesticks. That’s the kind of return you can’t help but write about (like I’m doing now).
These days, though, Netflix is starting to turn things around. A higher low was just set a few weeks back, and the current weekly candlestick is trading above the last five candle bodies. Contact was made with the lower Bollinger Band (BB) as well, meaning that NFLX has serious “rebound” potential.
Should NFLX rise above the current week’s high by a decent amount (to $287.18, for example), it might make sense to enter a long position.
Now, I know what you’re thinking:
“Are you crazy? Why would you go long on Netflix right when Disney+ is set to launch on November 12th?”
To that, I say:
This is the perfect time to do it, because investors have already sold-off Netflix like no tomorrow.
Everyone was counting NFLX out of the streaming wars, but with the gains of the last few weeks, it appears as though faith has been restored.
Yes, Disney+ will take customers from NFLX.
But that doesn’t mean it will kill off the competition in one fell swoop. Don’t forget; NFLX is still the “big dog” on the block. Based on how share prices have been moving, there’s reason to believe a rally could be just around the corner.
Even with rivals knocking on the door.
