Netflix has been one of the hottest stocks around. Wednesday, on the news of 7-to-1 stock split, shares traded above $700 for the first time. The other big news was that Carl Icahn sold the last of his Netflix shares. Icahn first bought these shares in 2012.
The real question for investors is what is next? Will the stock zoom to $900 or drop to $500? Let us examine both technicals and fundamentals.
The Chart
Take a look at the annotated chart.
Please click here for an annotated chart of NFLX.
Notice the divergence between the Relative Strength Index (RSI) and the price of Netflix NFLX RSI measures the internal strength of price movements. As the stock has gone higher, RSI is beginning to slope down. Also notice that RSI has been hovering around 70, which is considered overbought. Typically, such divergence is resolved to the downside.
If the overall market corrects, high-beta stocks such as Netflix are likely to be hit hard. Under such a scenario, Netflix is likely to fall into the zone shown in orange on the chart.
Ignore Traditional Fundamental Ratios
In a bull market, on a hyper-growth stock like Netflix, it is best to ignore traditional fundamental ratios that include P/E, P/S, PEG, and balance-sheet items. Such ratios are often misleading and do not predict stock price move…Read more at MarketWatch
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