I wrote an article on Netflix (NFLX) three weeks ago expressing concern that if shares dropped below $94, “things would get dicey.”
The good news for the media company that has taken over America’s living rooms (including my own) is that the $94 level has built up strength over the last three weeks, creating a volume ledge that represents massive support (see accompanying Volume Profile chart.)
In other words, Netflix dodged the bullet.
As I noted in my previous article, there are gaps below that will one day need to be filled. Specifically, a small one around $83 and a very large gap between $69-$74. I would add that there is additional risk to $67, the Volume Profile Point of Control.
Additionally, like Amazon (AMZN), NFLX is an expensive stock when measured according to standard metrics. Its trailing 12-month P/E ratio is 303, but heck, Amazon’s is 944. Obviously, the market is entirely willing to give certain expensive stocks a pass if they dominate their niche and this is the case for both companies.
Interestingly, the short ratio in NFLX has spiked in the last month, from 8% to 12% of the float. Compare this to AMZN, which has just 2% of the float sold short. The pop in NFLX skepticism actually bodes well for the rally I’m expecting to $122.50, an interesting Fibonacci level.
Currently, NFLX is consolidating above a broken downtrend line (bullish). Once the up-move starts, it should proceed rather rapidly to target.
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