The American media-services provider and production company headquartered in Los Gatos, California, well-known for its streaming services, Netflix Inc. (NASDAQ: NFLX) seems to be getting ready for a surge as per its latest charts.
Bullish Indications
#1 IH&S Pattern: As you can see from the daily chart, the stock is currently forming an Inverted Head and Shoulders (IH&S) pattern. This IH&S pattern is marked in the chart in orange color. An IH&S pattern is a strong bullish pattern and once a breakout happens from this pattern, the stock may move higher in the short term.
Daily Chart – NFLX
#2 Trading Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, which implies that the bulls are currently gaining control.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has risen above (+DI) and (-DI).
#4 %K above %D: The %K line of the stochastic is currently above the %D line in the daily chart.
The stoch is also moving up from oversold levels. All these indicate bullishness.
#5 Bullish RSI: The daily chart shows that the stock has moved up from oversold levels and is currently above 50.
This is a possible bullish sign.
#6 Near support area: The daily chart shows that the stock is currently near a support area, which is marked as a green dotted line. There is also gap support at the same level. All these indicate that the stock may move higher.
#7 Ascending triangle pattern: The weekly chart shows that the stock is currently forming an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked in purple color. Once a breakout occurs from an ascending triangle pattern, it generally indicates the start of a bullish trend. The breakout level also acts as a good support level.
Weekly Chart – NFLX
#8 Bullish RSI: The RSI is above 50 and moving up, in the weekly chart as well, indicating the strength of the current upmove.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for NFLX is if the stock breaks out of the Ascending Triangle pattern as well as the IH&S pattern. This translates to a price above $386.
TP: Our target prices are $400 and $420 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss at $377. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 4% to 9% in the next 4-6 months.
For a risk of $9.00, the target rewards are $14.00 and $34.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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