Buy the Dip on This FAANG Stock?

Netflix has recently retreated from its early June record high amid a broader tech swoon

Jun 22, 2017 at 3:10 PM
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Netflix, Inc. (NASDAQ:NFLX) has been a powerhouse on the charts over the past 12 months, boasting a 71% year-over-year lead to trade at $154.74. More recently, NFLX shares pulled back after hitting a record high of $166.87 amid a broader tech swoon. Nevertheless, the FAANG stock found a familiar layer of support atop its rising 80-day moving average, and if history is any guide, it could be time to bet on the security's next leg higher.

nflx stock daily price chart june 22

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, Netflix shares have pulled back to this moving average seven times in the last three years. One month after the signal, they have averaged a gain of 8.2%, and have been positive 67% of the time. In fact, after NFLX bounced from here in late April, the security when on to rally to its all-time peak, adding nearly 20% over the next seven weeks.

There's plenty of buying power on the sidelines to help fuel the stock's fire, too. Although short interest declined almost 4% in the most recent reporting period, there are still 27.5 million Netflix shares sold short. This represents more than a week's worth of pent-up buying demand at the equity's average pace of trading.

There's also room for a round of upgrades to draw new buyers to Netflix's table. Of the 30 analysts covering the shares, 11 maintain a "hold" or "strong sell" recommendation. Plus, the average 12-month price target of $159.89 stands at a slim 3.3% premium to NFLX stock's current perch.

It's also an attractive time to purchase premium on NFLX options, with the stock's Schaeffer's Volatility Index (SVI) of 44% perched in the relatively tame 35th annual percentile. However, volatility expectations are likely to rise in the lead up to Netflix's earnings report, due out the evening of Monday, July 17. Ahead of the event, the streaming giant announced a "choose-your-own-adventure" interactive episode of its animated children's show "The Adventures of Puss in Boots."

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