Netflix (NFLX) Stock: Only overbought conditions could chill ATH-aiming, videogaming-based rally

Chilling out may be fun during the summer – but as economies reopen, Netflix and chill may lose out to outdoor activities. However, while streaming services may have peaked with the pandemic, growth in the video-gaming sector is set to continue. That is where Netflix Inc (NASDAQ: NFLX) is heading, and investors are cheering. 

Netflix (NFLX) stock forecast

Netflix CEO  Ted Sarandos and his team have hired Mike Verdu, an expert in gaming, to lead the new effort. Verdu previously oversaw Facebook's development of content for Oculus virtual headsets. Before that, the executive worked at Electronic Arts (EA) and was responsible for bringing Star Wars to gamers. He was also involved in well-known games such as Sims. Apart from signing Verdu, Netflix has also posted job offerings for game developers. 

According to Bloomberg, videogames are scheduled to appear alongside other videos – movies, series, documentaries, etc. – in Netflix's offering sometime in 2022 and will be initially free of charge. That could help retain young customers who would ditch the TV set for the computer to play games. It would also widen Netflix's offering for young families. 

As the pandemic recedes, media companies such as Netflix, fear an "attention recession" that would result in a substantial drop in profits. The big winners of the covid crisis could be the biggest losers when things return to normal. However, gaming is "stickier" according to Craig Chapple of Sensor Tower, quoted by The Economist. An extra hour per week was spent on gaming and there are no signs of withdrawal.

Source: The Economist

While the move looks bold, promising – and perhaps necessary to stay on top – Netflix risks following the footsteps of Disney, which has failed in its video gaming initiatives despite having success elsewhere. 

Netflix (NFLX) stock chart

The daily NASDAQ: NFLX graph is showing that shares have been benefiting from an uptrend – higher highs and higher lows – since early May. The stock price broke above the 50-day and 200-day Simple Moving Average, yet another bullish sign.

However, the Relative Strength Index (RSI) is hitting 70 – entering overbought conditions which could trigger a correction. 

Nevertheless, the bullish momentum could continue and the critical levels to watch on the upside are the recent high of $554, the early February peak of $566, and the all-time high of $593. 

Support awaits at $524, which is the bottom of the gap line from June, then the double-bottom of $478 recorded in June, and finally $461,a cushion from last year. 
 

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