Morning Market Thoughts
Good morning. Netflix (NFLX) reported earnings last night and came in 25% higher than last year. But the stock fell after hours on Q2 subscriber guidance that was weaker than expected. Look, by any standard, the stock is “expensive.” But valuation has never really been a concern for investors of Netflix and Amazon (AMZN). So stick with the chart, and you’ll be ok.I think you buy NFLX at the open. It’s going to start trading at around $100, which is a logical buy point, particularly when you consider that it’s sitting right at the 50-day moving average. However,…one trading note: We’ve seen stocks “gap and crap’ — that is, gap down a substantial amount and then just keep falling. So use some risk management. If you make this bullish trade, then start small, and keep a stop that’s about $2 bucks below your entry. If you get stopped out, big deal. You’ve lost $2 on the small number of shares that you bought. But if the stock starts snapping back, you’re in at a low cost basis and you have room to build the position from a position of strength (i.e., a profitable position that you are making bigger).
Two stocks that I haven’t mentioned in a while definitely merit mentioning. Lockeed Martin (LMT) and Raytheon (RTN) are showing really good price patterns that give the potential of strong moves. LMT is completing a high base cup, with resistance at around $228. They report earnings next week. A positive reaction could spark the next leg higher. RTN is showing a bit different dynamic. It’s really formed a “flat triangle”, with $128 as resistance. The stock recently popped out of a squeeze, ran to $228 on a Phase 1 move, and has since pulled back to test the breakout. Yesterday’s advance could be the start of Phase 3, which can take the stock to new highs. They also report earnings next week.
Keep the trend in mind. Reader’s Digest version: Strong, confirmed uptrend…right at resistance, which increases the chances that the trend–if it is going to pause/reverse–will do so right here. But a breakout above 2,100 on the S&P is likely to bring out a bunch of money that has been patiently waiting (in vain) for a pullback.
Note: When a prominent sentiment is that the market must pull back to prior levels before it’s time to be bought, the market rarely complies. Why? Because some of those “I’m gonna wait for a selloff” buyers actually cheat — they’ll quietly buy some stock. And it is the cheating that props up the market.
See you in the forum.
Dan
Market Update