NFLX Charts Follow Up

Friday I was close to filling out the NFLX position, but decided to wait until this week, I believe I said I thought we'd need about 2 more days. The reason wasn't so much about price, in fact the NFLX partial position was down less than 1% when I posted Trade-Idea: Bringing NFLX Trading Equity Short to Full Size, at the close it's down less than -0.40%. It was about the timing and not having open risk for a couple extra days when probabilities were high that there would need to be at least a couple of days pass before there was a reasonable looking reversal process in place.

Between the reversal process and how rapidly NFLX charts were deteriorating today, this position became one in which I just couldn't sit on the sidelines anymore. There are certain charts and divergences that I do not ignore when I see them.

As for NFLX's charts, I'm going to try to give you a decent picture from macro to micro.

 This is a primary bull market cycle with a nearly year long base, about a year of mark up and near the same in a H&S top, which has been confirmed. The last stage is 4, Decline. The A and B are the first two places I'll short a H&S top, the top of the head and the top of the right shoulder, the last place and least favorable is after a break below the neckline/support and a shakeout rally that moves above the neckline as this is very common, but depending on where the market is at that time, we may not see that kind of shakeout, it is however a probability.

The downside (eventual) target area based on the H&S top's size is between $150 and $200, although these tops tend to overshoot their target on the downside, the pendulum of over-reaction swings both ways and often a lot harder when it's a fear/decline environment.

 This is a simple custom cumulative volume indicator I constructed to help identify the trends in volume. To confirm a H&S top the rally's that form the left side of the shoulders and head should see diminishing volume and the declines that form the right side of the shoulders and head should see increasing volume as we do above. By the time we are at the right shoulder, volume often falls off very badly on the rally and increases dramatically on the decline.

 On a daily chart (as we are looking for the top of the right shoulder), the last 3-days have been small bodied candles, a star, a hanging man and a shooting star or close to them, all of them show a lack of bullish momentum and open NFLX up to a downside reversal, although I'd like to see a bearish reversal candle on increased volume.

 My X-Over Screen is just showing the signals of a sell/short sell as price moving averages are whipsawing ( we want to see a clean break of the yellow 10-bar below the blue 22-bar), however the custom indicator in the middle is crossing below its moving average which is enough to end the long signal and RSI is not only divergent, but has crossed below 0 or 50 which is 2 of 3 signals going short, that's a pretty good start.

The longer term 4 hour chart shows confirmation of the rally before the H&S top and distribution in to the H&S top on a very large scale as this is a very long timeframe reflecting strong underlying moves.

The Daily 3C chart looks almost identical so that's an even worse development for NFLX.

 The rally to form the right shoulder was in line/confirmed by 3C, but it has not only gone negative, but leading negative at the reversal process area, the "U" shaped rounding top. Remember it's not uncommon to see a top that looks like an igloo with a chimney, a small head fake move on the right side of the rounding top, but I don't have any evidence that this is a probability based on the charts.

 The 30 min chart saw significant damage today alone and is already in a position in which I'd take the trade.

This is how much damage was done on a 30 min chart today alone, it has really picked up, this is why I could no longer afford to wait any longer to fill out the NFLX trading short position, but I may leave it as a longer term position depending on how it reacts at the neckline and what the market looks like at the time.

 The damage in the 15 min chart today shows why the 30 min looks so bad, what I really liked about this today was the migration across such long timeframes in a single day, strong distribution.

 And the 10 min chart is close to hitting a new leading negative low below where the rally first started for the right shoulder, I think it's only a matter of a day or too, with price that elevated and 3C that low, there's a recipe for a very fast decline.

And the 5 min chart is nearly at that level I just mentioned, leading negative to levels not seen since the positive divegrence was put together to start the right shoulder rally.