NFLX

As I'm going through a lot of stocks on my short list for positions (it's still quite a long list), one of the better looking is DIA short / Dow short with good confirmation in the 3x leveraged long UDOWn and the 3x leveraged short SDOW. I'm not a huge fan of a Dow short over some of the other opportunities, if you look at the 2007-2008 period, large caps held up longer and they did not break down as hard as even say just the SPX, however I am impressed by the amount of confirmation. I'll try to bring you as many of these as I can as they move in to position.

I'm NOT a fan at all of trading stocks before their earnings. There are simply too many wildcards, options premiums are insane, often such as with NFLX last quarter, the knee jerk reaction isn't representative of what the earnings said and what Wall St. ultimately thinks as NFLX took a significant dive since the last earning's knee jerk highs where we had entered, about -15% with no leverage in just over a month.

However I think stocks like NFLX, which is up today on an ANalyst upgrade 2 days before earnings and at very attractive prices to sell/sell short in to (and since when did analysts start having their salaries paid by us? Think about their motivations as we use to make jokes all the time about what an analysts opinion was worth, it was a lot, just in the opposite direction). Furthermore they announce that the shareholders board meeting will take up the issue of a stock split that if approved, would likely be recommended by management to be paid out in the form of a dividend, all this 2-days before earnings...stinks a bit huh?

However, at least 2/3rd of the market will move with the broad market meaning if you get strong signals the market itself is going to move, you know a majority of stocks will move in the same direction. Using the reverse theory, if you find an overwhelming number of stocks that all look similar and like they are about to do the same thing, you';ll often find that's a great head's up for the broad market, there's just that much correlation between the two so I do like NFLX for several reasons, that included.

NFLX will be reporting Wednesday April 15 after the market close. I don't know how many of you remember their last earnings report which was actually pretty bad if you read beyond the headline print, which is why we decided to add to NFLX (or as a new core short/Trend position) for others. However, there you may recall there was a large gap down from October 16th, we also identified and that looked very alluring.

In our trade set up for the most recent entry which I just posted I believe Friday in talking about NFLX, we identified a large accumulation area just before earnings, no one can read an earnings report faster than an HFT can react and it's always price that sets the tone of the "perception" of an event, therefore as we have demonstrated and argued in the past, it doesn't matter what the report says if HFTs drive price up 10+% in a fraction of a second, people will perceive the earnings report as strong even if it wasn't as was the case. But remember, we identified a large accumulation zone BEFORE earnings came out so it seems NFLX was destined to make that move no matter what earnings were which would allow market makers/middle men to get out of losing inventory from the large gap down.

Thus, especially with the gaps of the last several days and today, NFLX looks like a very interesting barometer, what does it look like pre-earnings this time and why do I like it as a long term trend short, although obviously an interesting trading stock?

 That's quite a parabolic pre-earnings move and today's daily candle with the long upper wick on heavy volume is indicative of churning or what some would call a distribution day.

As with some other longer term charts (5-day) like AAPL I have recently l posted, note the volume difference between a healthy move with rising volume and a dangerous move up on declining volume/declining institutional support.

I've also note RIS divergences, but you can catch those pretty easily.

NFLX also has a similar Broadening Top formation like the SPX and several other averages/Industry groups and not in a good position overall within that price pattern,

 Here's NFLX on a daily chart, RSI as well which is not currently at a divergence, but has been a pretty reliable indication, it may be worth looking for here.

The daily long term 3C chart for NFLC from stage 1 accumulation/base at a rounding bottom with a leading daily divergence, stage 2 mark up with 3C confirmation and I trust you can see the leading negative divegrence at the large, volatile , lateral Broadening Top-like price pattern. In either case, whether you believe this is a broadening top or not, I don't think you can argue the trend has changed from clearly up, to a wildly volatile lateral range, the 3C chart would indicate strong (daily chart) distribution through the area with more credibility for this being a top formation and about right in size.

 The 6 hour chart shows that pre-earnings accumulation just before their last earnings, it was an interesting feature we picked up and I suspect it was about middle men caught with large inventory at a loss on the gap down preceding this area which was filled on earnings here. The yellow arrow is our entry on a 6 hour leading negative divegrence and if you look at point a and b and where price is and draw an arrow from where 3C was to now, you see a very clear, large negative divergence.

 The 60 min chart shows the same, also note the positive divergence right before the last move up, the exact data was April 2nd, the same day I posted the market forecast for the triangle based breakout on that Thursday before Good Friday.

That divegrence being the EXACT same place as the market is no coincidence.

On a 15 min chart you can see April 2nd as the clearest divegrence area, the same day as our upside forecast and don't forget, 2/3rds of a stock's gravitational pull is the broad market.

Right now like the SPY at last look, the 15 min chart is in line, a divergence here and the SPY is where I'd want to be looking to possibly short NFLX as a longer term trend position/trade because of all of the long term 3C charts above.

 As for the 5 min chart, it is clearly leading negative and migrating as you'll see below so I do think it goes negative on the 15 min chart, especially after today's candle/volume action. CHURNING.

Not to mention the news 2-days before potentially ugly earnings allowing smart money an opportunity to sell at attractive prices.

The 2 min leading negative, just to show migration...

The 3 min leading positive last Friday at the close along with a lot of the market, but in this case, a larger divegrence in to Friday's close, I suspect the analyst report and stock split were well known to smart money last Friday before coming out. Thus... the positive divergence, but note it's only a 3 min, not a 60 min like last time pre-earnings.

And the 5 min which includes a positive divegrence right at April 2nd, and a leading negative one now. I suspect this will show a negative 15 min soon, whether before earnings or not, I would hope so, but I think it's one of the stocks that needs to be watched going in to mid-week considering the way the market behaved today in line with our forecast for Monday specifically , thus our mid-week forecast should be interesting as well.