NFLX Update / Trade Set-Up

I'm spending much more time going through watchlists than usual. Yesterday's Dominant Price/Volume Relationship among the component stocks of the major averages is typically associated with a 1-day overbought condition and a red close the following day just as Friday's Dominant P/V relationship was extremely strong and associated with a 1-day oversold condition and a green close the following day which was yesterday. As I stated last night, the other interpretation that I would not normally make except that the market hasn't gone far in a single day to make a true overbought condition believable and the internals were simply not that strong to support that view, unlike Friday's which hit some extreme levels. So last night's interpretation of the internals including the sector performance was that the market was weakening in to a bounce such as yesterday's and the 3C charts from SPY used as an example or proxy for the broad market suggested that was the case.

That makes any near term price gains in the area of watchlist short assets very attractive in to all kinds of weakness (breadth, underlying, leading indicators, etc).

However as I also said last night, I don't see the market's strength or ability to lift the market on its own, it seems to me it would need either a fundamental event that have been ugly overnight or perhaps a technical one like the head fake/false breakout I have been talking about since last week (originally thought to form as part of the range of the reversal process until the March SPX trendline has held as resistance so many times and is the far wider viewed resistance area). Thus a technical breakout would cause short covering, longs chasing and create the momentum without any underlying strength, this is half of the process or the means that lead to the end of a head fake move, which in this case would be a failed breakout/bull trap.

For example, for the SPX, which would have the greatest influence on stocks generally such as NFLX...

 SPX daily chart/Triangle and CLEAR resistance tested several times. Wall Street knows exactly how technical traders will react to such a heavily watched index such as the SPX breaking out above a trendline that has held as resistance 4+ times. This is the easiest way for Wall St. to create movement and its movement they need to fill positions, for example to sell or short NFLX they need demand and higher prices, both work together so their larger orders don't work against them and they know exactly how Technical traders would respond which is the same reason we have been watching it so carefully. Someone has to hold the bag. This is to say nothing of the head fake concept which you can read about linked on the member's site at the top right in the 2 articled "Understanding the Head-Fake Move".

As for NFLX, this is to say nothing of the atrocious earnings with pro forma FX losses used as put backs to effect the bottom line, it's accounting gimmicks, not to mention other things like the new subscriber growth coming at a cost of -20% for a new subscriber and the new NFLX record cash burn, blowing through $126 million for just the first quarter. This is similar to the last NFLX earning's gap up that we shorted at the very top as we identified an accumulation area before earnings, it doesn't matter what the earnings are on the knee jerk reaction, it matters what the perception of earnings are and price gapping up sets a perception, but remember it is a perception and one that Wall St. is happy to let retail believe as they unload shares of what is otherwise showing itself to be a real dog right there in its own earnings report if any of these momo chasers, like the ones who chased TSLA's model "W" WATCH on an April; Fool's practical joke. This is textbook bubble behavior, China is probably the sharpest example of it globally.

In any case, most stocks will move directionally with the market so whether there's gas in the tank or not right here is irrelevant, a break above that trendline and retail will do the work.

As for NFLX in the area, I still like the short equity position, I probably would have very little argument with an NFLX short equity position in the area after thee earnings inspired knee jerk reaction, not based on earnings, but the nano-second response of HFT's that set the tone and the perception of earnings long before anyone can read and understand them.

As for puts though, some of you have asked and I've put together numerous price alerts, I don't like chasing them on a day like today, down -1.15%, I like entering puts on strength in price, weakness in 3C and the overall market. So a bounce in NFLX would be most appropriate for puts and between the short term intraday charts and the SPX possoibility/probability of a head fake move, I think we get the set up in NFLX without chasing weakness, but in to price strength at a discount and lower risk.

Her's NFLX with a similar "Broadening Top like the SPX (not textbook, but they rarely are).

There are the 4 stages of a smaller cycle starting with stage 3 Top followed by stage 4 decline to the far left, REMEMBER THE VOLATILITY INCREASE DISCUSSION BETWEEN STAGE TRANSITIONS I MENTIONED YESTERDAY (and recent examples which are similar to the above chart)? At the red arrows just after stage 4 is one of those increases in volatility, a capitulation event. You may recall yesterday I said even after a selling/capitulation event, the market typically drifts lower in to stage 1 base which you can see at #1 as the rounding bottom even looks like a base area, then there's an increase in volatility with a breakaway gap up at the green arrow leading to stage 2 Mark-Up/Participation and if you look close you'll see the peeling away on the upside from the trend line at the end of stage 2 and in to the large stage 3 Broadening Top right around the yellow #2. The yellow numbers represent the approximate 5 points of contact seen most commonly in a Broadening Top, this would be stage 3 (TOP).

The recent move to the far right above the Broadening Top is considered a head fake move so long a it is confirmed with distribution, in other words a soon to be failed breakout attempt. This is how Wall Street uses nearly century old price patterns against technical traders who see the Broadening Top (it's a real top), but T.A. traders are taught that if the pattern fails, to change course and in this case, go long NFLX and chase price which suits Wall Street's needs just fine.

THIS IS JUST ONE EXAMPLE OF HOW WALL STREET USES TECHNICAL ANALYSIS DOGMA AGAINST TECHNICAL TRADERS AND HOW WE CAN USE IT TO OUR ADVANTAGE JUST AS WALL STREET DOES.

The Broadening top is way bigger than the 4 stage trend seen since the base (stage 1) on the chart above this one, I believe you have to look at the complete primary trend to see a top pattern that is proportional as it was too big for the previous chart, it is right in line with this longer term chart and shrinking volume on the last uptrend, note the first sees rising volume with price as should be the case.

The price/volume action at the red arrow is highly suspect and hints that institutional sponsorship needed for support to prevent any real and sharp declines is simply not there.

The red arrow is the last NFLX short we entered after the last earnings gimmick, it was right at the highs of the move to the very day after a month of waiting, which I'm not currently suggesting. A head fake move like this one would tend to fail much quicker depending on whether there was accumulation before the move like the last earnings and if so, how much gas in the tank?

The 60 min NFLX chart suggests there was no serious gas in the tank for this earnings move, it also shows a clear negative divergence right at the exact high in the trend where the last NFLX short position / Trade Idea was put out which hit double digit gains before our April 2nd forecast of a broad market bounce seen in the averages and the majority of the asset watchlist.

The 30 min chart shows the accumulation in advance (setting the earnings perceptions no matter what they were, it was already in place well before the last earnings (prior to Q1 earnings just out) and there's a smaller version of the same, you'll see like the broad market, AAPL and all of the watchlist stocks , April 2nd was an important date and for the market and NFLX has a lot more to do with a larger primary trend move than an earning's knee jerk reaction based on algos gapping NFLX at near light speed.

The 5 min chart of NFLX is probably why we are seeing recent weakness, the question is when looking for a trade set up is "Can we get in at a better area, a better price, less risk and better timing?" That's the difference between high probabilities and a high probability/low risk trade set up, the latter is what we want to look for.

The 15 min chart which went positive like most of the market and all of the market averages except IWM in to April 2nd's forecast for the market which has played out near flawlessly,  is turning, just like the SPY chart, but it looks like it has a bit more work to do suggesting we'll have a chance at a better entry in NFLX. As such I've set price alerts for areas $565-$576 to look for opportunities.

This 1 min intraday chart is showing a positive divergence right now, if it keeps up, it's suggesting NFLX gives us that upside opening that would be great for short equity positions, but I feel ok about them in this area, although I always want to find the best entry, but necessary for Put entry positions in my view.

As for the longer term view and highest probabilities for NFLX...

If you go back to the first chart above and the stages including stage 1 base/accumulation, you can see them all right here in divergences and the largest by far is the leading negative through the Broadening Top area, it's much larger than that which would be proportional with the base of 2012, thus it makes perfect sense that it is a primary trend, long term top for NFLX as shown on the longer daily chart (also above).

I'd set some price alerts if you have an interest in NFLX short or Puts.

Otherwise, I don't have a problem holding the equity short position as it is meant as a trend trade that can absorb some topping volatility, thus the lack of leverage on it.