NFLX Trade Set-up

NFLX has been a longer term short trend trade that I have been a huge fan of for some time, I think it is going to work very well.

I'm already at a full position size in NFLX for the trading portfolio and the position is doing just fine as far as I'm concerned. I can't add anymore unless an options trade sets up, I might consider that, but if you find you like the idea or have a partial position you might want to add to, this is what I'd look for and I'll give you a brief overview of the bigger picture here.

 This is the current position in the trading tracking portfolio, it's down 1.26% which is more than reasonable in a very volatile top pattern.

 I prefer to look at the big picture first, often you can tell exactly where you are in the cycle of a stock. From left to right we have a capitulation event at "C" from the preceding downtrend, the volume and gap down make it easy to identify. As I've noted in the past, the end of a stage 4 decline and capitulation event doesn't mean that a new stage 1 base will automatically form, typically there's some wondering and a move to lower prices despite the selling event/capitulation.

At #1 we have a stage 1 base, it is easy to identify by the rounding bottom and is about a year in length, this is where accumulation takes place for the next stage which is the breakout or Stage "2" Mark-up, this is where a good portion of the easy money is made, also stage 4 as they are both trending stages.

At #3 you can see a clear change in character of price action and the clean uptrend is now a large , lateral choppy range or top, this is a distribution phase as well. What comes next in our cycle (which works on any timeframe by the way including the bounce we are in  now, it has a stage 1, stage 2 and looks to be moving to stage 3 so this concept is fractal and can be used on any timeframe you are trading, you just have to identify the stages so you know where you are on the map to know where you are going next)  is stage 4, decline or a bear market.

 This is a daily chart and the apparent top pattern looks to be a Broadening top, note that ALL H&S tops first start as Broadening tops, one way to determine whether a H&S is likely is by volume confirmation,  a Broadening top has erratic volume and no pattern to speak of whereas a H&S top has a very specific set of rules as far as volume confirmation. As noted earlier, the 2010 H&S price pattern fooled a lot of traders because with all of their new indicators they have forgotten one of the most important tools you have, Volume Analysis.

NFLX's volume is very similar to a H&S top, the price pattern looks more like a 90 degree Broadening top.

This is a quick custom cumulative volume indicator I threw together to help identify the trend in volume vs. price. Like a H&S top, volume picks up on the declines and falls on the advances, whatever the price pattern, this is bearish behavior.