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Featured Trade US Stock Netflix bearish breakdown

Article By: ,  Financial Analyst
October 5, 2018 5:38 AM

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



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