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How to Play Netflix and Roku Stock for Massive Gains

Chris Tyler

It has been somewhat like “Must See TV” in Roku (NASDAQ: ROKU ) stock and Netflix (NASDAQ: NFLX ) of late. But to prevent watching a horror movie in your portfolio unfold, our suggestion is to wait for a programming change to a less exciting, but important broadcast to appear on the price charts. After this, buy ROKU stock and NFLX stock.

Let me explain.

I’m guessing you’ve probably enjoyed your share of NBC’s “Must See TV.” Not to date myself, but my favorite era was when the slogan was backed up with Friends , Seinfeld and ER . That’s right, back when unreliable VCR’s, once-a-week broadcasting time slots or renting from your neighborhood Blockbuster to catch episodes of your favorite shows were ubiquitous with watching television. Thank you Roku and Netflix!

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Today, how we watch television and a marketplace dominated by streaming stocks Netflix and Roku has been more than a welcome change. With the technological access provided by ROKU and NFLX, people can watch virtually any type of television programming 24/7 and from nearly anywhere they chose.

But before you jump off that couch to buy into these two streaming stocks, realize investing in a secular growth story like ROKU stock and NFLX can provide both crowd-pleasing, action packed performances, as well as scare the you-know-what out of their paid audiences with gut-wrenching price action.

The good news is that following large corrections and sharp, market-leading technical rebuttals where the role of protagonist has switched from bear to bull, it’s time to put ROKU stock and NFLX stock in your queue for purchase in the not-too-distant future.

Pairs Stock Strategy Long: ROKU Stock

Despite its dominance in the over-the-top streaming television market, Roku’s puny capitalization of around $4.4 billion and opportunistic position to grow much larger in the years to come comes with a price … namely, over-the-top volatility in ROKU stock.

During this past quarter’s market correction this persona manifested itself in shares of Roku moving from a tenacious position of relative strength and setting all-time-highs and straight into an equally bone-chilling deep retracement that likely scared the bejesus out of anyone other than the most zealous ROKU stock bull.

More recently, Roku’s horrifying correction, which “narrowly” broke key lateral and 76% supports, performed a volatile about-face, much to the relief of those devoted ROKU stock holders. Now, with shares carving out a simple pullback pattern that’s currently three days in duration, it’s almost time to buy shares.

ROKU stock chart

For bullish investors agreeable with ROKU’s big picture prospects off and on the price chart, I’d suggest waiting for the current three-day simple pullback pattern to confirm a low is in place. That should happen sometime in the next day if a daily chart entry is to appear.

If today’s rarer relative quiet persists, the pullback may grow deeper and establish confirmation on the weekly chart. Either way, buying on weakness and setting either a pattern stop-loss or a money stop below $30 makes sense given the market’s own aggressive rally over the past two weeks. And it’s one likely due for a modest encore performance from a bearish protagonist.

Pairs Stock Strategy Long No. 2: NFLX Stock

As our other streaming stock, Netflix’s correction of 45% from its June all-time-high, seems almost quaint compared to ROKU stock. But don’t let the veteran’s performance fool you. It’s still highly volatile.

Despite its hefty capitalization of around $141 billion, NFLX stock’s 45% correction still managed to come in at roughly twice the NASDAQ’s punishing drop.

Sure, the horror show in Netflix shares took a couple more months to make bulls run for the exits. But that’s a much harder-to-stomach decline than the typical 30% most growth stocks like NFLX endure during healthier market climates.

Furthermore, with its triple-digit price tag, the still-high volatility can feel even more nauseating in bearish environments, as well as like winning an Oscar when things go right like they have lately. But don’t think for a second that means the coast is clear for buying NFLX stock today.

NFLX stock chart

Currently, Netflix has staged an equally impressive, but much swifter overbought 45% price reversal into zone resistance. This fragile position is punctuated by the 200-day simple moving average, 50% – 62% retracement levels and a downtrend line.

Bearing that in mind, NFLX stock is in need of a less exciting, but important program change similar to what’s going on in ROKU stock before investors consider buying shares. In fact, given the staunch technical barrier, a “best short-term bearish performance” by a market large cap could be forthcoming before bulls take the stage again.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits .

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