The last time we wrote about NetFlix(NFLX) was in July, when we alerted our chatroom to a possible breakout and banked some nice coin on the huge move to the upside. You can read about the profits here and our thoughts here. It's been nearly 3 months, and Netflix(NFLX) has been trading near multi-year lows with bearish bets at all-time highs. As of September 15th, there are 15 million shares short of the 54 million share float, meaning 28% of the shares are short. With no real catalyst until earnings in October, it would seem logical that the stock continues to succumb to the bears, yet the stock has found support around the $53 level. Each time it has bounced over 20% from that level... a level it found itself at last wednesday. Will history repeat itself? Well take a look at the chart below and see that Netflix (NFLX) has formed a 'triple bottom'
The triple bottom can provide a reliable reversal signal : A pattern used in technical analysis to predict the reversal of a prolonged downtrend. The pattern is identified when the price of an asset creates three troughs at nearly the same price level. The third bounce off the support is an indication that buying interest (demand) is outweighing selling interest (supply) and that the trend is in the process of reversing.
If Netflix(NFLX) breaks the $59.72 resistance, the stock will be in reversal mode. The stock is also in a descending wedge pattern when you put the chart into a weekly view which is also bullish:
Now all the stock needs is a catalyst to help fuel the rally. The stock got that today as Whitney Tilson touted the stock at the 8th annual Value Investing Congress. Here is a great read on what Tilson had to say.
I almost laughed when I listened to Tilson compare the Netflix(NFLX) story to Amazon(AMZN) back in the day, but the more I thought of it the more it started to almost make sense. International growth is still in it's infancy, and competition seems fierce. Yet what would happen if the future of content is not the local cable companies, but is the providers of the content on a global scale.
The argument is that Tilson feels there is a 10% chance that Netflix(NFLX) is a ten bagger from its current price in the coming years, and he is willing to bet on the story. Whether that happens or not is yet to be seen, but what we do know is Netflix(NFLX) has a history of making option traders some serious gains buying in before the big move.
With a great chart setup, and some added attention, we like Netflix(NFLX) for a nice move over $60 over the next few days.
We currently hold the $57.50 Weekly Calls.