NFLX Trade Set-Up

After watching NFLX every day for months now, it looks like we are finally moving toward a workable trade set-up. I try not to post information that isn't useful and in NFLX's case, for the most part there hasn't been too much useful recently as you'll see below, but I believe that's starting to change.

Remember that the market's direction is the greatest influence on any individual stock on any given day, in fact  about 2/3rds of the stocks in the market will move directionally with the market, This is why our broader market theory and movement is so essential to Trade Set-Ups and Trade Ideas.

NFLX vs. the NASDAQ 100

This is what I mean.

As for NFLX, there's already long term deterioration there because it looks to have been in the end stage of a top and a rather large one, the hard part is the timing unless you are very patient with wide stops (As I tend to be).

To know where you are going, you have to know where you are. Looking at the daily NFLX chart you can see a number of features that tell you where you are. From left to right, the red "C" is a "Capitulation" or selling event usually marking the end of a stage 4 decline. Note the gap down and high volume-selling event. After this prices tend to drift a while before any new stage 1 base is created which you can see at the white #1 and the rounding bottom (yellow arrows). Next is stage 2 mark-up or rally which holds a trendily pretty well and then the warning that the trend is about to change as price peels away from the trendily to the upside which starts a large lateral, choppy Broadening Top.

During stage 2 through 2013 there was a +300% gain on the year. After that during the LARGE stage 3 Broadening top, there was a 6% loss for 2014,  so the "Change in Character" warning was very useful.

Even with a large Broadening top (and they rarely look like they textbooks in real life), there's a head fake move above the top, this tells technical traders that it wasn't a top or it is nullified and they are free to resume chasing prices higher. Wall Street needs this demand to continue selling in to demand (including short selling). Notice how the head fake move above the top in yellow looks very strong although it's really not that much of a move. From the Broadening Top's upper trendily it's only about 8%. That's the kind of look needed to change psychology from thinking NFLX is topping to believing it is still in a bull market, the same reason counter trend rallies are so strong.

For those of you who have seen these tight , flat ranges with clear resistance areas, you know they are high probability head fake set-ups,  a last chance to leave some poor bag holders with shares of NFLX at the very high just before it moves to stage 4 decline.

A head fake move in any asset and any timeframe happens about 80% of the time, the more noticeable the resistance/support or other technical feature, the more probable there will be a head fake move. The more popular the asset, the more likely there will be a head fake move. This is what I've been looking for in NFLX and to get it in NFLX, it's very helpful for the market to do the same (see the NFLX vs NASDAQ comparison above) and this isn't anything unique to NFLX, it's any asset on our watch list as a potential trade.

Again the concept is simple, no one wants to risk buying NFLX with the market flat and NFLX flat, but give them a break above resistance and they'll chase that all day, giving smart money demand to sell or short in to. This is what I have been watching for every day in NFLX as well as many others.

This is a bit detailed, but my Custom DeMark inspired buy/sell indicator.

More importantly the NFLX daily 3C chart showing accumulation at the stage 1 base confirmation in to stage 2 mark up, distribution in to the stage 3 top that lost money through 2014 very much unlike stage 2 in 2013 and the move above the Broadening top with NO 3C confirmation; it didn't even make a slightly higher high,

Here's the same chart without all of the notation.

In other words, the big picture view of NFLX is one of a large top and lots of distribution.

As for the entry, the last time we had an earning's based pop we could see it would be a short set up, we waited nearly a month for that set up and entered at the exact high on 2/26, Trade Idea: NFLX Short

Since NFLX has put in another earnings gap up on bunk earnings, with all kinds of accounting gimmicks, Wall St. wasn't fooled. This 60 min chart failed to make a higher high and never recovered from the Feb 26th divergence.

Recently the tight range I showed you above has seen deterioration, Wall St. selling it and this has moved to stronger timing charts. The big picture daily, 60 min charts are already in place, it's the timing now.

15 min chart deteriorating which has been interesting, but not useful, just the right direction.

 However very recently, this week in fact, the timing charts' trends like this 3 min have been showing increased activity, this has grabbed my attention. The only thing I've been looking for now is the head fake move as Wall St. will use that to sell in to,  the entire point of Technical analysis is to follow what smarter money than us are doing.

It wasn't until today that an intraday 1 min chart started looking like NFLX is getting ready to make that head fake move and considering the market evidence near term, it seems well timed.

I'm setting alerts for a break above the $630 area and will look for intraday distribution on that break. We'll confirm distribution in to any such move and if so as I fully expect,  That's our entry. Let the trade come to you, get in at the best price (for a short) with the least risk and seeing that head fake moves are the last thing we tend t se just before a reversal, it also gives us the best timing.

Since I've already opened NFLX equity shorts meant for longer term trends, I'll likely be interested in put positions on the discount, however you can use the information any way you se fit.

This kind of chart is not unique to NFLX, I wouldn't be surprised to see quite a few go off around the same time.