Here Is How To Catch The Knife In Netflix
- Posted by TheArmoTrader
- on October 24th, 2011
YOU DON’T. Plain and simple. Sorry for the misleading title, but that is the plain truth. But here is what you can do. I believe Netflix will soon (within this year) be “valued” at a good price. As of the After-hours low of $85.00 (on October 24), it is off more than 72% from the High. Now I’m not saying it was fairly valued at the high, but as the leading service for online streaming, I think there will be a time within this year that it will be valued very “cheaply”, considering its dominance in the sector.
But just because something is “cheap” or “oversold”, it does not make it a good long candidate. Valuation is not a catalyst. I have seen ENDLESS amounts of stocks gap down big and sell off much more after the gap (Netflix included). So what should you do if you are eying Netflix like I am?
You Wait. You wait for it to set up a base or legit bottom. There are many ways for it to “bottom” out, but the one thing that must happen is time has to pass. Let all the weak hands and big funds get out. Only then when every long is out, will it be a good try for a long (of course by scaling).
But lets take a look at the TA for Netflix and spot possible support areas.
$NFLX – Netflix Inc. Monthly Chart
I am only really looking for 2 spots for possible bases/bottoms to get long off of. Netflix still has a ways to go for it to get to my targets, but seeing how most Momo Funds will be (jumping) out of this tomorrow, I see it losing most of its momentum gains it had from 2010.
The first spot im targeting is the runaway gap fill from Early 2010 (not shown) at $50.97, which also coincides with some possible support. The second spot, which will uiltimately be the juiciest long, is at around $40 (H/t to @HCPG for tweeting that level out). I am not looking at any moving averages based on two facts, A) Broken Stocks don’t pay attention to moving averages, and B) Netflix is gapping below any majopr moving average you throw on any normal time-frame (daily,weekly monthly). The only moving average support it can “find” is on the Quarterly 20 SMA (which I have no idea who would be using that).
What happens if Netflix gaps down tomorrow and they bid it right back up to $100 and I miss the move. I don’t lose anything really (not a great r/r buying on the open). I’ll move onto the 2000 other stocks I can make money in.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry "TheArmoTrader" Khachoyan is currently an active trader, investor, market commentator, and Finance-Twitter participant. He started being involved with financial markets in September of 2008. He concentrates on using technical analysis and an understanding of macro to determine his trades and investments. He graduated UCLA with a degree in Political Science in 2013. The stock market to him is one of the greatest inventions by man.
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