'Net Neutrality' Excites Netflix

11/13/2014 7:00 am EST

Focus: STOCKS

Stephanie Brown, of YesOption.com, offers actionable insight as to how to play the stock of this content streaming service, given that the ‘net neutrality’ debate became more heated when President Barack Obama issued a statement calling for more regulation of Internet providers.

The net neutrality debate has finally reached the White House, with President Barack Obama calling for a ban on Internet ‘fast lanes.’ This news is especially exciting to data hogs such as Netflix, Inc. (NFLX) that recently exchanged bitter words with Internet providers concerning lower Internet speeds.

Obama especially asked the FCC to regulate Internet providers who have been accused of intentionally lowering Internet speeds. These remarks had a ripple effect, sending a number of cable stocks tumbling in the market. Netflix, of course, could not hide its enthusiasm and subsequently published a statement on Facebook stating that users should now be allowed to choose winners and losers on the Internet.

A raging battle has been ongoing between Netflix and Internet providers in wake of the Federals Appeals Court announcement that the FCC doesn’t have a legal mandate to control Internet providers. Obama meanwhile ordered the FCC to crack down on ‘pair prioritization’ and provide users across all platforms with equal Internet speeds.

Obama already suggested that the FCC should consider classifying consumer broadband as a public utility under the 1934 Communications Act. This approach that Obama is proposing is exactly what Netflix and other industry lobbyists have been fighting for. AT&T however, already threatened to take legal action against the FCC, should it implement Obama’s plan.

Some officials on the other hand, argue that data hogs like Netflix should be forced to bear some of the costs that will be incurred when upgrading infrastructure to support the net neutrality plan. A number of Republicans have already turned down Obama’s suggestions taunting the plan as a mere government overreach.

Technical Analysis

Netflix, Inc. NFLX traded Tuesday in a very narrow range, closing marginally negative. The stock closed below its 20-day EMA of $392.51 with its RSI additionally moving downwards, currently at 40.56. Going forward, the stock has immediate support near $375 and $370, whereas resistance is approximately $392 and $399.

Actionable Insight

Buy Netflix above $387 for target of $392 and $396, with a stop loss of $384.5.

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By Stephanie Brown of YesOption.com

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