So how is it NFLX gapped up (if you don’t know what a gap is, click here) more than 18% today you ask?
Pretty simple actually…
A massive short covering rally. There were lots of shorts in the stock with stops in the $490 to $500 area.
They got swept today.
Don’t get me wrong… I’m sure there was fundamental buying as well… just not a lot.
Is the company worth the 140+ * twelve month trailing earnings?
Doesn’t matter really. The market took the stock to a temporary equilibrium in the stratosphere, but tomorrow will likely be an entirely different one.
So What Now?
This is a strong breakout from a long and wide range, so it’s probably “true.”
However, my guess is the next high probability trade is to catch a retracement back toward what was resistance and is now support in the $490 to $500 area.
If (as I suggest) you don’t play the short game with individual stocks you can wait for a pullback toward that same $490 to $500 support zone to initiate a long position.
If you already own the stock, do nothing, but hold it… and maybe have a (another?) celebratory drink tomorrow evening.