Netflix Stock Could Break Out From Ascending Triangle

Netflix, Inc. (NFLX) shares have risen 1.38% over the past week toward the top of an ascending triangle pattern. While most analysts have been very bullish on the streaming content provider, there are some concerns over rising content costs, particularly amid rising competition from The Walt Disney Company (DIS), Amazon.com, Inc. (AMZN) and Hulu, which could put upward pressure on development costs.

Earlier this month, Media Tech Capital Partners analysts speculated that Microsoft Corporation (MSFT) would try to buy Netflix to get into the streaming business without having to acquire its own content portfolio. With Netflix facing about $8 billion in content expenses this year, including an undisclosed deal with the Obamas, an acquisition could be an attractive way for Microsoft to deploy its capital effectively and to help Netflix address rising costs. (See also: Obamas Sign Multiyear Contract with Netflix.)

From a technical standpoint, Netflix stock has formed a bullish ascending triangle pattern over the past two months. The relative strength index  (RSI) appears a bit overbought at 60.75, and the moving average convergence divergence  (MACD) has trended sideways. These indicators suggest that the stock has room to break out on the upside, but there has been a lack of strong momentum over the past few months following the breakout in January.

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Traders should watch for a breakout from the ascending triangle's upper trendline and R1 resistance at around $343.75 toward R2 resistance at $375.10. If the stock breaks down from lower trendline support at around $330.00, traders could see a move to the pivot point and 50-day moving average at around $310.00 or a move down to retest reaction lows near S1 support at around $276.18, although the bearish scenario seems less likely to occur. (For more, see: Microsoft May Buy Netflix: Media Analyst.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.