Momentum traders’ favorite Netflix Inc (NFLX)  had a big rally off its September lows and meanwhile reached a price target I discussed several weeks ago.  It’s time to re-visit where this stock stands from both a near-term and medium-term perspective.

On December 6th 2012 I discussed here  ( how the stock price of Netflix Inc (NFLX), based on a meaningful bullish outside day from December 4th was torquing-up to fill the big down-gap from earlier in the year on April 24th.  The stock reached my ultimate price target set at the time near $102 just last week and now looks a little tired in the immediate term.

Let us look at a few charts for perspective on where the stock currently sits and what the risk/reward for longs feels like.

The first chart shows the nice gap fill, which for traders that played this so called ‘gap-fill’ trade netted a cool 14% in three weeks.

On the ‘longer-term’ chart looking back to 2011 we of course remember the big crumble in the stock during the second half of that year.  Since late 2011 however Netflix Inc (NFLX) has been trading in a wide but defined range, which on the upper-end bumps into the $120 mark.  From this point of view the stock could well have more upside in coming months once near-term overbought conditions are worked-off.

On the closer-up chart looking back to the beginning of the latest sharp rally (October 2012), note the almost 100% increase in the stock in just three and a half months.  Given the inside day on January 15th, followed by follow-through selling the following trading day, it may be time for the stock to take a little breather.  Next simple lateral support comes in near $89, which coincides with the stock’s 50 day simple moving average and  from last Friday’s close is about 10% lower.

On the momentum indicator charts where I display both Stochastics and the RSI index, I also see supportive signs that in the near-term the stock may need to rest/correct before ultimately heading higher again.  Both indicators did not confirm the January rally in the stock (negative divergence between price and momentum) as they both topped in December.

In summary, on a longer-term view of several months Netflix Inc (NFLX) could continue to lift higher once near-term overbought conditions are worked-off, which may include up to a 10% correction in the stock.


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