Is it time to grabe Netflix (NFLX)? Here’s your measured move strategy. (February 12, 2019)NFLX
Let’s look at Netflix ( NASDAQ: NFLX ), here’s why: I am getting a lot of questions from people today saying, “Hey, is this squeezing? Is it time to buy Netflix ( NASDAQ: NFLX )?” Let’s go through it.
First of all, I don’t really feel like it is squeezing the Bollinger Bands, which is just my tool for measuring a squeeze. They are almost 12 percent wide, which is pretty wide; I like to see them at 6 percent or so. If you really just look at the way the stock has been trading for the last couple of weeks, it’s in the 6 or 7 percent range, so I guess you could go with that.
The idea here is, if a stock is squeezing, once it breaks out to a new high like above the upper Bollinger Band, that would signal a volatility expansion, typically a directional thing and you will get a pretty big move to the upside. But it has to be in a squeeze for that rule or view to really apply.
Why is that? The reason is because just crossing above the upper Bollinger Band is nothing magical it happens all the time. Typically the bands contain the price but I am not going to turn this into a video on standard deviation. But the thing is, if the bands are too tight then the stock has to traverse from the bottom all the way up to the top. It has taken so much buying energy, so many aggressive buyers to actually push the stock up above the upper band that by the time the stock gets there it is kind of a little bit overbought.
You don’t have that issue when the range is really, really tight; then the stock only moves a couple percent or something like that. In fact, if the bands are 6 percent wide, if the stock is trading at the middle band, which is the 20-day moving average the stock only has to move 3 percent before it tests the upper band so that is ripe conditions for a breakout that actually works. Here, I don’t really think we have that. But that doesn’t mean that I am saying that you shouldn’t trade the stock or the stock won’t go higher, it may very well do that.
Here’s the way I would look at it though: I would do a measured move; this is about $40.00 from 360.00 down to 318.00 or 320.00. So we take that $40.00, which is the top to the last bottom then we just extend that upwards, 360.00. Guess where 40.00 is going to take up to? Yes, you know. Let’s all say it together, $400.00.
So you could look at this and have a price target of $40.00 higher than it is now. If you are buying the stock right here and you keep your stop a little bit below 350.00 then what that breaks down to is, you are risking $10.00 in order to make 40.00, if the price target works. It could very well do that if we have a strong market.
So I would be looking to buy this stock if it peaks up above say 361.00 or 362.00. Keep a tight stop, 3-4 percent, no more than that, you don’t need to give it more room than that. And then look for a move to around $400.00. That is how I would trade this stock.