This 'Perfect' Indicator Says It Might Be Time To Sell Netflix Stock

Over the past few weeks, shares of Netflix, Inc. NFLX have made a large move higher. But in doing so, they've become very overbought. This means they're trading at an extreme above what would be their typical trading range.

It could be a sell signal.

Why It's Important: Many trading algorithms are based on probability theory. It suggests all trading should be within two standard deviations of the recent average price.

On the following chart, the red line is two standard deviations above the 20-day moving average price. Over the past year, shares exceeded this important threshold six times. Each one proved to be a good time to sell.

Now Netflix is above the line again. It could be another sell signal.