On Jan. 28th I posted, NFLX (Short) Trade Set-Up Looking Ripe
"I think the trade set-up in NFLX, let the trade come to us, is looking pretty decent in this area."
Which was immediately followed up with, NFLX Follow Up , the excerpts posted below are the gist of the trade set-up...
"Here are the previous posts on NFLX's less than stellar earnings, to understand all of the concepts, how NFLX could move like it did on those earnings, why it likely needed to move where it did and what we'd be looking for as a set up in to a NFLX short...
Jan. 21st NFLX trade Set-Up
Jan 22nd NFLX Follow Up
Jan. 23rd NFLX Trade Set-Up Follow Up
While I'd prefer to wait for this 2 hour chart to go negative before entering a NFLX short, the fact is it's a longer term timeframe that takes more time to move and price could be well on its way down before the lagging element of a timeframe this long reflects a negative divergence.
We expected this to be a process, we expected the gap to be filled which it was not on the first day of the earnings gap up, since it has been and price looks a lot more like a reversal process is in place right now than it did on the day of the gap.
Trend Channel stop broken and...
"Remember, there can be some choppy volatility after a Trend Channel stop out, but for the most part, you are usually best of taking the signal as the bulk of the trend is over and the rest is just dangerous volatility for very small jiggles."
The volatility after a Trend Channel stop out is there as is what looks a lot more like a reversal process than price on the 28th.
Additionally the 3C charts we wanted to see deteriorate....
The 2 min chart's trend. Note the yellow trendline and resistance area. Ideally and conceptually, this would make for a nice head fake move above the resistance area to set a bull trap (that's the generic reasoning, there are many more reasons , some of which are crucial for smart money in the size they trade).
A head fake move would also make for a better entry and lower risk, generally better timing, it doesn't happen all of the time, but I'd definitely say a majority of the time. More importantly, I'd like a NFLX trade to align with the broad market, if we feel the market is ready to make its move lower, that will be one of the highest probability factors in moving NFLX lower, an Ebb Tide drops all boats. Beyond that, I like the general area and we haven't strayed too far from where we first looked at NFLX as we were looking for a few additional things to happen.
Looking at the same 2 min chart on an intraday basis...
This most recent little jiggle higher is in to a negative divegrence.
The stronger charts like the 5 min and beyond are what we wanted to see deteriorate and that has happened.
The divergence has migrated as we were expecting to see to this longer term 30 min chart,
To a 60 min chart and even to...
The 2 hour chart I said I'd like to see turn negative.
I'd say that these divergences could be sharper and lead negative more so than they are now, but I'd also consider a head fake move as a great opportunity to look at NFLX short and/or a pretty well confirmed expectation of the broad market getting ready to drop as that will have the most directional influence on NFLX.
All in all, since the trade set-up idea was posted, NFLX has moved in the direction we had hoped and expected to see.
As for our custom Trend Channel and this particular trend, it is breaking below the channel which has held the entire trend since the green arrow started to the left, it is moving below the Trend Channel stop out level now and will confirm at a close < 4445.50, probably $445 as a psychological magnet.
Remember, there can be some choppy volatility after a Trend Channel stop out, but for the most part, you are usually best of taking the signal as the bulk of the trend is over and the rest is just dangerous volatility for very small jiggles."
Since then, the Trend Channel stop has been broken...
The volatility after a Trend Channel stop out is there as is what looks a lot more like a reversal process than price on the 28th.
Additionally the 3C charts we wanted to see deteriorate....
A head fake move would also make for a better entry and lower risk, generally better timing, it doesn't happen all of the time, but I'd definitely say a majority of the time. More importantly, I'd like a NFLX trade to align with the broad market, if we feel the market is ready to make its move lower, that will be one of the highest probability factors in moving NFLX lower, an Ebb Tide drops all boats. Beyond that, I like the general area and we haven't strayed too far from where we first looked at NFLX as we were looking for a few additional things to happen.
Looking at the same 2 min chart on an intraday basis...
I'd say that these divergences could be sharper and lead negative more so than they are now, but I'd also consider a head fake move as a great opportunity to look at NFLX short and/or a pretty well confirmed expectation of the broad market getting ready to drop as that will have the most directional influence on NFLX.
All in all, since the trade set-up idea was posted, NFLX has moved in the direction we had hoped and expected to see.
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