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Netflix Inc.’s stock has been quietly rallying for months, enough to put it on the verge of producing a rare bullish chart pattern that suggests that a longer-term uptrend is just getting started.
The streaming entertainment services company’s
NFLX,
stock started the year in the dumps, with the company scrambling to deal with losing subscribers for the first time as competition grew more fierce in an evolving postpandemic environment. To add insult to injury, Netflix surrendered the title of streaming leader to Walt Disney Co.
DIS,
earlier this month.
After closing at a record $691.69 on Nov. 11, 2021, Netflix shares plunged 76% to a five-year low of $166.37 on May 11.
Since, the stock has come out of nowhere to book a 73% gain through afternoon trading on Friday. BofA Securities analyst Jessica Reif Ehrlich resumed coverage of Netflix last week with a buy rating and $370 stock price target, saying the new advertising video and demand (AVOD) offering should help ramp profitability.
The stock is now on the verge of producing, as early as Tuesday, its first bullish “golden-cross” pattern in about 15 months.
A golden cross refers to when the 50-day moving average (DMA), viewed by many as a short-term trend tracker, crosses above the 200-DMA, which is seen as a dividing line between longer-term uptrends and downtrends. Many chart watchers believe a golden cross appears when a shorter-term bounce graduates to a longer-term uptrend. Read more about golden crosses.
Netflix’s 50-DMA line extended to $256.43 on Friday, according to FactSet, and has been rising an average of $1.17 per day over the past 10 days, while the 200-DMA came in at $260.18 and has been falling by an average of 70 cents a day.
The bullish crossover would come less than five months after 50-DMA was the furthest below its 200-DMA on a percentage basis — 56.9% below it on July 1 — in nearly 11 years, when it was 59.5% below it on Jan. 5, 2012.
FactSet, MarketWatch
Moving-average crosses aren’t always good timing tools, given that they are well telegraphed, but they can provide historical perspective for investors, who may be waiting for a definitive signal to join the trend. And history suggests they aren’t bad entry points.
The median gain and duration of the uptrends that followed Netflix’s previous five golden crosses was 68.6% over nine months. Here is a list of those last five golden crosses, along with the price that shares closed at that day and how far they rallied before peaking:
- Aug., 16, 2021, at a closing price of $517.92, three months after the stock bottomed at a six-month low. The stock rallied 33.6% before peaking at its record close of $691.69 on Nov. 17, 2021.
- Jan. 30, 2020, at a closing price of $347.74, about four months after bottoming at a nine-month low. The stock soared 68.6% over the next year, before peaking at $586.34 on Jan. 20, 2021.
- March 13, 2019, at a closing price of $361.21, about three months after closing at an 11-month low. It rose another 6.6% before peaking less than two months later, on May 3.
- Oct. 10, 2016, at a closing price of $103.33, about eight months after closing at a nine-month low. It then more than quadrupled over the next 21 months, rising 305.5% before peaking at $418.97 on July 9, 2018.
- March 11, 2015, at a closing price of $62.88, three months after bottoming at a seven-month low. The stock more than doubled after that, rising 108.2% before peaking at $130.93 on Dec. 4, 2015.
Netflix’s stock, which fell 2.5% to close at $287.98 on Friday, has run up 19.4% over the past three months but was still down 52.2% year to date. In comparison, the S&P 500 index
SPX,
rose 0.5% on Friday, and has fallen 6.2% the past three months and dropped 16.8% this year.
