Unbeknownst to many professional traders that I speak with on a daily basis, shares of Netflix, Inc. (NASDAQ:NFLX) actually fell by 40% from their late 2015 peak into the February lows. That’s a meaningful corrective move any way you want to slice it.
Netflix stock has rebounded since but is coming into a major area of technical resistance where chasing NFLX higher from here without any clear breakout looks to be a high-risk, low-reward move.
In fact, active investors and traders should consider shorting Netflix stock upon the next confirmed bearish reversal.
From a news perspective, the stock’s current critical technical juncture/resistance area is lining up with the upcoming earnings report scheduled for April 18, or a little more than one week from today. Any strong conviction move up or down in NFLX following the earnings announcement could set the tone for the stock’s direction in coming weeks or months.
Netflix Stock Charts
Before looking at the near-term charts — in particular, the confluence area of resistance that NFLX stock is currently fighting with — let’s get some much needed perspective from the bigger-picture chart.
On the multiyear weekly chart, we see depicted the stock’s ultra-sharp 2012-15 rally, which measured nearly 2,000%. Clearly Neflix has been (and I believe continues to be) one of the better single-stock growth stories out there. But like anything that rallies too much too fast, ultimately a corrective phase hits to shake out weak hands and reset the chart.
As such, allow me to be clear that I think the corrective phase for NFLX stock that began in late 2015 is just that, and ultimately the stock will resume its upward trajectory.
In the near- to medium-term, however, note that the current corrective phase broke the stock’s steep rising wedge pattern. When this happens, a stock usually doesn’t quickly snap back to its previous all-time highs in a V-shaped manner.
Looking at the price action a little closer up, we see that the 40% drop from last December into February in January broke below both its red 200-day moving average and a diagonal line of support. The stock then bottomed along with the broader market in February and now is coming right back into a major confluence area of resistance made up of the following: the 200 day moving average, the blue 10-day moving average, the former diagonal support line, the 50% retracement of the entire selloff from December into February.
Less risk-averse traders may look to initiate a partial short position in NFLX stock here at this confluence resistance area while the more patient and risk averse may first want to see how the stock reacts to the April 18 earnings report. Any notable bearish reversal after earnings may signal the next leg lower in the stock, while any big breakout rally could signify that the February low was the low for the corrective cycle and the uptrend would resume.
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