NFLX Update

NFLX is one of numerous stocks on my watch lists that have a trend among them, which is one of the reasons I believe what I do about our broad market forecast, when you see so many assets doing or looking the same way, there's usually something to it.

In any case, near term NFLX looks like it wants to pop higher, I believe without a doubt, especially after those horrible earnings, that this will be a head fake move and I would much rather short into price strength than risk a long position here, but everybody has their own trading style and risk tolerance.

 This is the daily chart of NFLX, notice anything similar to the SPX? These price patterns are not text book in real world, but that looks a lot like a head fake move on a broadening top which is the very premise of using technical analysis against technical traders as that move nullifies the top in their view. In fact according to technical analysis, it should be bought.

From our perspective, that's setting up a failed move and a sweet bull trap. Once these moves fail they fall fast.

Coming back around to the intraday charts…

 This is the intraday one minute NFLX 3C chart showing a local positive divergence, although small considering the timeframe.

 There's enough migration in the divergence to show up on a two minute chart as well. The gap up is from the last earnings which were ridiculous pro forma with FX losses used as add backs and from what I understand their subscriber growth was at a cost of -20% per new subscriber as well as burning through a record amount of cash for the quarter.

 Once you get into the stronger institutional time frames like five minute charts, you can see the positive divergence just before earnings. As you know it's my opinion that price movement in these situations creates perception, thus the perception of earnings was created by an Algo in a fraction of a second long before anybody had time to actually read the earnings and it looks like smart money is using those higher prices to sell in to.

 The much stronger 30 minute chart shows the last negative divergence on an earnings based gap up which we shorted on February 26 at the exact top after waiting nearly a month for the set up. Note a small W bottom and leading positive divergence before earnings at the white box and trendline. Also note the 3C leading negative divergence into the gap up.

On the strongest chart at 60 minute, you can see the amount of distribution in to the last earnings based gap up as well as this one. Based on the very short term charts above I believe NFLX acts like the broad market expectations and wants to move higher in the very short-term. I would much prefer to use that strength in price combined with the underlying weakness to short in to or open an options/ put position once we have confirmation of distribution in to higher prices back on the short-term charts. This gives us the best entry the lowest risk & the best timing.