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Is It Time For Netflix?

07/11/12 09:24:04 AM
by Koos van der Merwe

On June 25, I wrote that we should look at Netflix as a possible buy. Now may be that time.

Security:   NFLX
Position:   Accumulate

On June 25, I wrote that Netflix (NFLX) had formed a double bottom, suggesting that we should only consider buying should the price break above $106.83. That, along with the relative strength index (RSI) rising and the JM internal band indicator suggesting a buy should the price break above the upper band at $70.24, made this stock look interesting indeed.

My charts have now given me a definite buy signal.

Graphic provided by: OmniTrader.
Figure 1 is a weekly chart that has given a buy signal in the vote line. The advisor rating for Monday, July 2, is 65, with an entry date of July 9 at $81.89. The buy signal was triggered by the relative strength index (RSI) 12-period nonoptimized strategy.

The chart is also suggesting a double bottom forming at the $60 level, with an immediate target of $123.65. On June 25, the share price came to my attention when its price began to test the upper JM internal band line. At that time, I concluded that we should only consider buying should the price break above the $106.83 level. That and a move above the upper JM internal band line at $70.24 should also be a positive.

The weekly chart has now confirmed a buy signal.

Graphic provided by: OmniTrader.
Figure 2 is a daily chart that shows that a buy signal was given by the RSI 12-period strategy on June 6, which was stopped out on June 11. A new buy signal was given on June 15 once again by the RSI 12-period strategy, which was later confirmed by a number of red-green strategies. Once more it was stopped out by the RSI 12-period strategy on June 21, but the summation of the red-green strategies gave a vote line buy signal on June 22 that is still in force.

The chart is showing the 14-period RSI is at overbought levels, with the ergodic oscillator also above the zero line, but not yet suggesting a sell. With the gap at the $74.33 level, I would wait for a correction to fill the gap before buying, anticipating a share rise to fill the gap that occurred in April.

I would be a buyer of NFLX on any correction.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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