NFLX Follow Up

Last night I put out this post regarding NFLX possibly topping finally, the reasons for that opinion can be found in this post , but it can be summarized as a dramatic shift in the 2-4 day 3C charts. These are very long term and very significant timeframes, basically the longer term chart the divergence appears on, the more important the divergence is. Both charts did a good job in confirming NFLX's uptrend so I have little reason to doubt the negative signals they are showing now.

It's important to remember that tops are volatile, rarely do we see a clean "V" shaped reversal, but within that volatility there are some opportunities to put on some swing trades until the top s resolved, at which time a longer term perspective trade would be appropriate.

 Here's the weekly linear regression channel. There are only two serious looking consecutive pairs, right now at the red arrow and the pair at the yellow arrow. Based on the LN channel, the first swing move down should target the $245 area, it may be a bit deeper if NFLX breaks the channel as I suspect it will.

 This is the daily LR channel, note that each time NFLX has broken out of the channel to the upside, it has been followed by a swing trend to the lower channel, this also puts the target in the $245 area.

 You can also see on this daily chart that NFLX has run in to some support defined by former resistance and a gap which match up well. Last Friday I posted a piece about "What to expect after Friday's Op-Ex ran its course. I used a similar period during the May Op-ex. After May Op-ex passed, the next day, a Monday, the market was down, it accumulated a bit and then went on to bounce for several days, setting up a short opportunity before continuing lower. We still have 10, 15 and even hints of a 30 min positive divergence in the market, so the market's ability and support to make a similar bounce like the May bounce is certainly there. If so, NFLX, like most stocks, would likely participate in the bounce and offer better risk:reward short set ups. I put forth this possibility not just because this is a similar situation to the May Op-Ex, but because those 10/15/30 min positive divergences are still on the chart lending some credibility to the scenario. It also behoves Wall Street to be able to set up a short position in to strength, something that couldn't be done last week with the market having to be held within a range to cause options to expire worthless.

 NFLX is showing some signs this may be the case as well. The negative divergence on the reversal is another head fake theme carried out against technical traders. The reversal and the negative divergence were on a break out to new highs, technical traders often buy such breakouts, which allows Wall Street to sell short in the open as they take the other side of the long's trade-selling short is still selling and still fills a retail long's buy order.

Based on a Fibonacci retracement, I'm thinking NFLX could make it to the $295-$297 area. There's some resistance in the area (red) and a slight break of that resistance would set up the longs for another head fake.

Depending on the type of trader you are, you may want to establish a partial position in the area or you may want to wait and see if the bounce theory pans out, giving you a better tactical entry. If NFLX is finally breaking down as I suspect t is, there is a ton of downside potential so my inclination would be toward patience. I'll continue to update the trade as it develops.