Netflix Moves Further Into Overbought Territory

Netflix, Inc. (NFLX) shares rose more than 3% on Wednesday and hit new all-time highs above the $400 mark. Despite intensifying competition in the space, the bidding war for Twenty-First Century Fox, Inc. (FOXA) assets by The Walt Disney Company (DIS) and Comcast Corporation (CMCSA) has underscored just how vital streaming content has become to the media industry.

Several analysts have recently lifted their price targets on Netflix in response to its swift move higher and the evolving industry developments. Piper Jaffray raised its price target to $420.00, Monness Crespi raised its price target to $460.00 and GBH Insights set its price target at a lofty $500.00. Goldman Sachs also has a $490.00 price target on the stock from last week, which was previously the highest estimate before the GHB Insights estimate came out this week. (See also: Netflix – Now at All-Time Highs – to Rally 25%: GBH.)

From a technical standpoint, Netflix stock broke out from R2 resistance at $388.18 earlier this week to make new all-time highs. The relative strength index (RSI) moved further into overbought territory with a reading of 85.35, but the moving average convergence divergence (MACD) accelerated its bullish uptrend. These indicators suggest that the stock could see some near-term consolidation, but the overall trend remains higher.

Traders should watch for some near-term consolidation with the R2 and trendline at $388.18 serving as key support. If the stock breaks down from these levels, traders could see a move down to lower trendline support at $360.00 or even a move down to the 50-day moving average and pivot point at around $340.00. However, the more likely scenario is that the stock will rebound from support and continue to move higher after a period of consolidation. (For more, see: Why Media M&A Is No Threat to Netflix: Guggenheim.)

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