The Globe and Mail

Looks like a case of buy high, sell higher

Hey Lou,

I was wondering if you could give me any more information on Netflix and how it looks as an investment.

Something that jumped out at me was the volume on Jan 27th. Now I have no idea what the volume means, however the volume on that day is 18.5 million which is more then double any of the other day. I was just wondering how I would go about finding out why that is the way it is.

Any info on this stock would be greatly appreciated.

Thanks Lou!

Kellen

Hey Kellen,

Thanks for the assignment. I have never looked at Netflix Inc. NFLX-Q as an investment but after looking at the charts I can honestly say I wish I had. The charts for NFLX are a perfect example of an ideal investment opportunity from a technical perspective. The charts say it all, so let's get right to them.

The three-year chart is a textbook case of a stock that has created a ton of wealth for investors that got on the ride and stayed in the saddle. The first signal that the selling was over and that buyers we coming back to this stock was in late 2008 when a double bottom formed. You can see the two dips in October and December when this puppy was trading at $20.00. A double bottom is a reversal pattern that tells us that the sellers are worn out and that buyers will take control of the trading.

Now you can see why I wish this one had shown up on my radar sooner. Ten baggers don’t come around everyday but when they do, you want to back up the truck and load up! Further signals that NFLX was on an uptrend include a golden cross in February of 2009, and a break above resistance at $40.00 in April of the same year.

In addition, the stock tested support along its 200-day moving average in September of 2009 and again in February of 2010. A sure sign of buyer confidence.

The six-month chart illustrates the buy and sell signals generated by the MACD. In late August of 2010 a buy signal at $130.00 and a sell in late September at $170.00 are just two of several on the chart.

The event on January 27 , 2011 that generated volume of 18 million shares was the reaction to the quarterly results that were released after the market closed on January 26. As an investor, you need to know the dates when the companies that you own are going to report earnings. You need to use a site such as globeinvestor.com to get a handle on the information flow for the companies you own,are thinking of buying, or selling.

As far as how NFLX looks like as an investment. The trend is your friend until it ends. It looks like a case of buy high – sell higher.

Make it a massive weekend, and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

Visit his website Happycapitalism.com