Featured Trade (U.S Stock): Netflix bearish breakdown

Bearish flag breakdown in Netflix

Medium-term technical outlook (1-3 weeks) on Netflix Inc (NFLX)



Key technical elements

  • Netflix, the “N” of the bunch of high flying momentum “FAANG”stocks that has outperformed against the general market by a wide margin since the start of 2018; it recorded stellar gains of 86.07% versus returns of 8.09% and 17.14% seen in the S&P 500 and Nasdaq 100 till 28 Sep 2018. In addition, “FAANG” stocks have contributed 48% of Nasadaq Composite Index gain in 2018 and Netflix till to date gains in 2018 is ranked number one among the FAANGs.
  • Its primary uptrend from Dec 2014 low of 45.08 has showed signs of medium-term bullish exhaustion, the weekly RSI oscillator has flashed out a bearish divergence signal at its extreme overbought zone after it hit a fresh record high of 423.21 on 21 Jun 2018 that confluences with a Fibonacci projection cluster.
  • The most recent up move in price action from the 20 Aug 2018 swing low area has taken the form a “bearish flag” ascending range consolidation configuration which was further reinforced by a declining volume one the average as prices worked its way up inside the  “bearish flag” coupled with a bearish divergence signal seen in daily RSI oscillator. These observations suggest that the up move from 20 Aug 2018 swing low is likely to be a “dead cat bounce” that lack conviction to see it transform into a bullish impulsive upleg phase.
  • Yesterday’s (04 Oct) price action has staged a bearish breakdown from the “bearish flag” that has been accompanied by an increase/jump in volume versus the prior day (03 Oct).
  • The intermediate resistance stands at 373.73 (the pull-back resistance of the former “bearish flag” support with key medium-term resistance at 391.75 (the gapped down seen on 17 July 2018 & 61.8% Fibonacci retracement of the prior medium-term down move from 21 Jun 2018 high to 20 Aug 2018 low.

Key Levels (1 to 3 weeks)

Intermediate resistance: 373.73

Pivot (key resistance): 391.75

Supports: 312.96 & 274.50/270.30 (LT downside trigger)

Next resistance: 423.21 (long-term pivot)

Conclusion

Netflix may start to stage another round of medium-term downleg below the 391.75 key medium-term pivotal resistance to retest the 17/20 Aug 2018 swing low area of 312.96 before targeting the next support at 274.50/270.30 (Fibonacci retracement/projection cluster & the key pull-back support of the former long-term secular ascending channel resistance from Oct 2002 that has been broken out on Jan 2018).

However, a clearance above 391.75 invalidates the breakdown of the “bearish flag” for a squeeze up to retest the current all-time high level of 423.21.

Charts are from eSignal



Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.