I posted at least 3 times for an earning's related NFLX trade set-up, I also maintained the NFLX tracking portfolio short positions, 1 still at a decent gain, the other close to break-even, but I don't think for long.
Here are the previous posts on NFLX's less than stellar earnings, to understand all of the concepts, how NFLX could move like it did on those earnings, why it likely needed to move where it did and what we'd be looking for as a set up in to a NFLX short...
I think NFLX is probably pretty close to a decent short entry right here.
NFLX Daily Chart. This looks to be a large Broadening Top.
the gap down likely left market makers with inventory at higher levels, thus our upside target was a gap fill, also one of the reasons the trade appears to have been set up in advance of earnings.
Here's the long term cycle in NFLX from stage 1 base/accumulation in 2011 and 2012 to stage 2 mark-up or what others call, "participation" to stage 3 top/distribution. Just looking at the price trend itself you can see the rounding base, the mark-up trend, the increased ROC on the upside/volatility that often marks the end of a trend and the transition to a new one which is a broad lateral Broadening top or stage 3, Top/Distribution and you can see 3C is confirming each of those stages on this daily chart which makes the current leading negative divegrence very strong being its a daily chart.
This is what I believe was the set up. As we have had a lot of posts on the topic recently, "Perception" is what drives the market, it didn't really matter what NFLX's earnings were, especially the way they put out the headline beat, but if you dug a bit deeper, things didn't look nearly as rosy as the headline number,
but the important part of the concept is that at the speed in which the market moves, price action defined the perception before any human would have the ability to read the first word of the earnings report, the perception becomes the reality and it would seem that reality was necessary because of the gap down and smart money being stuck with inventory at higher prices at deep losses that needed to be rectified before the market makes it impossible.
While I'd prefer to wait for this 2 hour chart to go negative before entering a NFLX short, the fact is it's a longer term timeframe that takes more time to move and price could be well on its way down before the lagging element of a timeframe this long reflects a negative divergence.
However...
The 1 min chart's trend since the earning's related gap up has been in a clear trend, negative the entire time as expected and part of the confirmation of the trade set up.
As with all 3C charts, if the divergence is strong enough it will migrate to a longer term timeframe which is a stronger signal.
This is the 5 min that shows the positives BEFORE earnings (the set-up of perceptions) and migration from the 1 min to the 5 min which is leading negative.
However it doesn't stop there. We expected this to be a process, we expected the gap to be filled which it was not on the first day of the earnings gap up, since it has been and price looks a lot more like a reversal process is in place right now than it did on the day of the gap.
The 15 min chart has also seen the same migration, going from a positive and then leading positive divegrence to in line to a leading negative divegrence.
And we are all the way out to the 30 min chart since the gap up, that's 3C migration of a divergence so I have little doubt this has been an exercise of distribution for a specific purpose, again, read the earnings or what we posted of them, tell me if you would have chased NFLX up here knowing the full story behind the head line release?
As for our custom Trend Channel and this particular trend, it is breaking below the channel which has held the entire trend since the green arrow started to the left, it is moving below the Trend Channel stop out level now and will confirm at a close < 4445.50, probably $445 as a psychological magnet.
Remember, there can be some choppy volatility after a Trend Channel stop out, but for the most part, you are usually best of taking the signal as the bulk of the trend is over and the rest is just dangerous volatility for very small jiggles.
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