NFLX Update

Well our long term core short, which for a good part of this year has been one of my favorite core short positions, NFLX, is seeing a bunch of press today.

If I have this correct (feel free to correct me as I DO NOT WATCH OR LISTEN TO CNBC EVER unless it's to hear the live F_O_M_C policy statement and press conference after, other than that, I think I've watched it about 6 times over the past several months and that was because my girlfriend likes "Shark Tank") and I'm not arguing with a combat/air assault Blackhawk pilot who's done two tours in Afganistan and Iraq.. I'll just cook and clean...), from what I've heard today from members, Cramer and crew were suggesting NFLX was a buy at $310, about -12% lower. Then, as I understand it, Mark Cuban who is on Shark Tank, tweeted he's long NFLX.

Right now we have two positions I'm tracking in NFLX as a core short as we've had two separate entries, one is up +15% and the other is up almost +26%. I didn't realize how many of you were short NFLX (many of you took profits right after earnings and I don't blame you. I will say, I was surprised at how many of you wrote in and told me about your gains, I'm VERY happy to see you trusted the long term NFLX signals.

NFLX is oversold, it in my opinion is not worth half of the current price and the market will reprice it taking in to consideration that the F_E_D induced liquidity rush is over and that NFLX's growth phase is over. It wouldn't surprise me though to see a bounce to the upside as that's a huge gap.

One thing to remember, the leaders of one bull market are almost NEVER the leaders of the next, take housing stocks during the last bull market and consumer discretionary stocks or "Social Media" and AAPL during this market or back in the late 90's, anything with a .com, semi-conductors, HGSI, etc... they weren't the leaders in the next bull market and neither will NFLX be, in fact it wouldn't surprise me if it gets sold down to some ridiculously low level sub $100 and we'll say, "Remember when NFLX was $475!"

If you want to play a bounce, then I can't blame you, me personally, unless I see something extraordinary, I'm content holding this one short for another year or so and just tucking it away and not worrying about what MArk Cuban is or isn't doing. By the way, I understand CNBC changed their tune real quick after they heard Cuban was buying, that's objective analysis for you.

The charts...

 On a weekly chart, you can see a healthy move in NFLX to the left, volume expands with price for an approximate gain of +1400%. The next run up, a F_E_D induced flight to yield was NOT on healthy volume, and while the Arth. chart looks stronger, the gain is about half the previous.

At the yellow arrow we have a HUGE (remember this is a 5-day chart, each bar is a week) Broadening Top.

The 3-day long term 3C chart shows accumulation in to the first run of +1400%, the second base at #1/Stage 1 base is not as bit. You can see stage 2 mark up with some 3C confirmation early on and stage 3 top/distribution with SEVERE DISTRIBUTION . I don't know how much MArk Cuban can put in and in how much time, but it will pale in comparison to what we see above.

When Leon Black from Apollo Group said in May 2013 that they've been selling "Everything not nailed down for the last 15 months in to price strength", this is the kind of chart that depicts those actions of a large fund like Apollo.

 Just to be CLEAR, on this Daily chart of the Broadening or "Mega-phone" top, NFLX HASN'T EVEN BROKEN BELOW THE TOP'S SUPPORT.

The price pattern based target on the downside would be approximately $125 and those targets are often conservative, of course this is over a longer period, it's not happening in the next few months, but that's an idea of where NFLX is headed despite what Mark Cuban is doing today.

Wilder's RSI shows divergences as well that should have been a red flag, but more than anything, price's change in character from a trend to a lateral and large choppy range, coming after a stage 2 Mark-Up period, we know what comes next, stage 3 top. You have to know where you are to know where you are going.

 The 4 hour 3C chart gives sharper detail to the distribution process, note to the left at the green arrow #1 we have 3C confirmation of the uptrend and then as the Broadening top starts, 3C is clearly leading negative...DISTRIBUTION @ #2.

With a little time, the 4 hour chart will make a significant new leading negative low.

 The 2 hour chart is even more detailed. This is where you see how Wall Street dumps huge positions without driving price against them like they did when they panicked and sold AAPL all at once resulting in a -45% loss in 8 months.

AAPL WILL NOT be the leader of the next bull market!

The slight accumulation at the white area is just enough to get prices moving up again so they can sell more in to demand as that's what they need to get out of these large positions without collapsing price on themselves, this is why distribution is a process and 3C signals are a sign of the process, not a buy or sell signal in themselves without using multiple timeframe analysis and other indications and concepts we have developed.

We aere seeing how smart money works...

 The 60 min chart is still extremely strong in defining underlying trade and more detailed than the 2 and 4 hour charts.

Again, there's some accumulation to halt the slide in price and to get NFLX to rally, but note how much more distribution there is, this is a macro example of the micro concept of a market maker or specialist working the bid/ask and letting out or absorbing supply to get price to a level where they can fill orders.

I switched to a slightly faster chart, although it's not the correct version for NFLX, I just wanted to see how much new underlying action was taking place. Mark Cuban may be buying, but that doesn't mean he's buying a lot and  smart money guys like Cuban only disclose this information when it's to their advantage, otherwise, they do anything and everything to hide their orders as predatory HFTs will front run them, larger firms will try to corner their position.

My guess is Cuban was in his full position before he ever said a word about buying NFLX and the announcement is just some free momentum to get it moving so he can take some gains.

In to earnings you can see a clear leading negative divegrence or distribution, I think Wall St. has known that the NFLX sub-expansion was bound to end as it did. There's a small 10 min positive in to the lows, someone was buying a falling knife, maybe Cuban and friends.

Still, for NFLX to make any sort of reasonable upside move it will need market support and a much bigger base. Right now looking at the short term 3C chart above, you can see where they are accumulating down near the lows and letting out some supply to send prices lower as it reaches the top of a narrow band. It seems this will be the accumulation zone for now.

 Here's a closer look, accumulation in white and distribution, on a smaller scale, just enough to move prices lower to the accumulation zone.

I suspect NFLX will need a base somewhere near the size of the rounding bottom and head fake move (yellow) I drew in and if #1 is the start of that base, you have some idea of how big it would need to be to fill that gap, but if it does, remember the long term charts and the fact NFX hasn't come close to even breaking down from the top, much less entered STAGE 4 DECLINE.

Be careful, don't rush in to this because of Cuban or Cramer, make sure you have an objective edge.