On January 22nd I discussed ( http://investorplace.com/2013/01/netflix-bulls-need-to-hit-the-pause-button/ ) the crossroads which the stock price of Netflix (NFLX) had arrived at after hitting a price target which I discussed on December 6th ( http://investorplace.com/247trader/2-stocks-same-setup-nflx-and-big/ ).
The day after my January 22nd analysis, on January 23rd the company announced its earnings and the stock screamed higher to the tune of 42% the following day, squeezing those short the stock hard and forcing them to buy back the stock.
The massive stampede post earnings took the stock on the weekly chart to its longer-term 50% Fibonacci retracement of the swing from the 2011 highs to the September 2012 lows, and hence a potential area of resistance. Through the same longer-term lens, the next big Fibonacci retracement area of resistance at 61.80% is another 16% higher from current levels.
On the daily chart the current technical setup becomes much clearer. Since the big rally the stock has now spent a few days consolidating sideways, which in this context is bullish at the margin. This island of sorts, the price action cluster from the past two weeks is essentially also free floating, as the large gap below from January 24th looms (blue box on chart) and no real resistance above current price levels.
A breakout past current levels could get the stock moving toward $208, which is the top of an unfilled gap dating back to September 2011, and which also happens to coincide with the aforementioned 61.80% Fibonacci retracement level.
At the same time, the stock from a momentum perspective is markedly overbought if we consider oscillators such as Stochastics and the RSI. As I often point out however, in strongly upward trending tapes such as is the case here in Netflix (NFLX), momentum oscillators don’t offer the best of insight as they can remain overbought for longer periods of time.
Netflix (NFLX) is also very extended from its 200 day simple moving average, currently a cool 122% above it. As such a mean reversion move somewhat closer to its moving averages is possible.
In summary, should the stock pass current levels more upside is likely, while and weakness in coming days may force the stock to mean-revert at the very least a few percentage points to the downside. Best of all however for both bulls and bears on Netflix (NFLX) is the defined risk in which trades can currently be put on given the trading range of recent days.