Another light volume session plagued the markets today as the major indexes finished the session flat, although the Dow did manage to tack on 20 points. After initially following European markets into the red, stocks spent the better part of the day battling back towards break even. The VIX, which was green to start the day, did an about face to slump over 3%. In retrospect, it was almost like today didn’t even happen because technically speaking, from yesterday to today, nothing changed.
There was one stock in particular today though that didn’t sleep in: Netflix (NFLX). As most know, NFLX has been battered to the tune of 70%+ since topping out at $300 over the summer. However, NFLX has spent the better part of the last 2 months consolidating in a 12-15% range. During that time NFLX’s 50 day sma, which had been sloping sharply downward since September, has begun to level out. Today’s 11% rise is the biggest one day increase for NFLX since before its 70% free fall began.
With NFLX rocketing higher today after the company disclosed that its subscribers streamed more than 2 billion hours of movies and TV shows in the latest quarter, it is now back in play as an acquisition target. With earnings still still over 2 weeks away NFLX appears to have more upside left. We feel that take over rumors and a chart that finally got back above its 50 day sma will continue to benefit the stock.
We are not recommending bullish positions on NFLX going into their January 23rd earnings date, but we are recommending making the most of this bullish momentum over the next week or so. Look for the 50 day sma (@ $76.54 currently) to act as support on any pullbacks over the next 2 weeks as NFLX attempts to challenge its November high around $95. NFLX options expiring next Friday will start trading tomorrow and we’ll be looking at picking up the $85 call strike, assuming we can pick it up for less than $1.50 or so.
As for the markets we still recommend short positions be initiated using yesterday’s 1,284 high on the SPX as a stop loss. What we mean by that is to remain short as long as the S&P500 remains below 1,284.
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