Shares of Netflix, Inc.(NASDAQ:NFLX) slipped more than 2% on Thursday as the broader risk-off feel in large-cap technology stocks continued. While perma-bulls on NFLX stock and other large-cap tech favorites are chanting “buy the dip,” the reality is that on June 9, something changed for these stocks in the near-term for now. Very simply, NFLX stock turned its near-term direction to bearish and that has yet to change. No, I am not ‘bearish’ this stock through a medium- to longer-term lens, but for the here and now, this stock is finding it difficult to attract buyers.
I realize that plenty in the financial media tailor their stock picks to attract the most clicks and please the momentum crowd. As such, today I could have easily chosen to chant a bullish rant on NFLX stock.
Over my thus far nearly 20-year career as a market participant, however, I have learned that respecting both sides of the market and focusing on what the market is telling me instead of being opinionated is the path of least resistance.
In order to achieve this level of psychological liberty, I constantly measure trends in any given stock, index or other asset class in multiple durations, i.e. time frames. In fact, I have found that not doing so leads to great confusion and random decision making and thus losing portfolios.
On June 9, the broader U.S. large-cap tech sector as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) flipped from near-term bullish to near term bearish, all in one day. My proprietary scanner flagged this in real time later that day, and I have largely respected this new near-term trend ever since. In fact, not having been long stocks like NFLX in the near term has been one of the biggest contributing factors to my alpha generation this month of June.
NFLX Stock Trade Idea
The days leading up to June 9 saw many large-cap tech favorites including NFLX stock tap the very upper end of their big picture up-trends.
The subsequent visually obvious synchronized sell-off on June 9 gave us initial confirmation that the bulls for the time being got too giddy and that a consolidation phase may be in the cards. Note the simplicity of the analysis.
Not surprisingly, NFLX stock on June 9 also rejected the upper end of its intermediate-term up-trending channel and has, as a result of the selling pressure since, mean-reverted back to the lower end of this range.
We note that the lower end of this up-trending channel currently also coincides with the stock’s blue 100 day simple moving average as well as horizontal support. Considering where NFLX stock still trades in the bigger picture (very much at the upper end of the longer term range) and that near-term momentum is bearish, quicker hitters and less-risk-averse traders could try to play the stock to the short side toward a next downside target closer to $140.
More intermediate term traders and investors would be wise to stay out of the stock from the long side until such time as either a strong bullish reversal rears its head or the near-term trend turns back higher.
As a side note, Netflix is scheduled to report earnings on July 17, which could be a next important toggle date for the stock. Near term traders would be wise to be out of the stock (long or short) through the earnings announcement.
Check out Anthony Mirhaydari’s Daily Market Outlook for June 30.
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