Movie subscription service provider Netflix Inc. (NFLX) has seen some major volatility in its stock over the past two years. After falling from the July 2011 all-time high near $305, the stock didn’t find bottom until August 2012 and closer to the $52 mark. The stock has since rebounded sharply, the pivot point having been a big post earnings up-gap in mid January of this year.
On the multi-year chart below note that the stock has now retraced more than half way (50%) of the big down-leg in 2011. The next point of resistance is what I often refer to as a ‘confluence zone’ where multiple indicators come together at one level. At just about $209 Netflix Inc. (NFLX) runs into its 61.80% Fibonacci retracement level, which happens to coincide with the top of a down-gap dating back to September 15 2011. In other words, the filling of this long-standing gap not only satisfies gap-traders’ price target, but from a trend point of view the stock also reaches a pivotal point near $209.
On the closer-up daily chart below note that the stock has consolidated nicely through the month of February, until it yesterday broke out of a bullish pennant formation on respectable volume. The stock is extended above its simple moving averages but as stated above, the $209 level has a good likelihood of acting as a magnet of sorts and thus a great profit target for those long the stock on the back of yesterday’s breakout. The $209 level is about 8.50% higher from yesterday’s close at $192.36. Any drop below $180 would prove the breakout false. For those interested in an options play, the trade can also be done using at the money calls given current low implied volatility levels.