Following a period in which investors have subscribed to profit-taking, is now a good time to buy into Netflix (NASDAQ:NFLX) stock? Let’s take a look at the latest developments off and on the price chart and examine a stronger risk-adjusted solution to playing NFLX stock.

It’s tempting to look at NFLX stock and see the decline in share price over the last couple months as a great opportunity to buy shares while they’re out of favor with Wall Street. But a happy ending for Netflix is hardly a forgone conclusion.

Bottom-line, NFLX stock’s disappointing earnings confessional in late July wasn’t welcome news and it wasn’t a one-off either. The cost of doing business for Netflix and competitive threats from the likes of Disney (NYSE:DIS), HBO, Amazon (NASDAQ:AMZN), AT&T (NYSE:T) and others isn’t getting any easier for the streaming video giant.

The decline of around 20% in Netflix stock since earnings is a direct consequence of those headwinds. Most recently, Apple (NASDAQ:AAPL) and its deep push into the streaming market with Apple TV+ is a challenge which can’t be ignored. The tech giant’s Nov. 1 product launch will offer consumers high-quality original programming at less than half the price of Netflix’s monthly $12.99.

But what if you love “Mindhunter” or one of Netflix’s other shows, and see today’s situation as the contrarian equivalent of blood on the streets? I’d still have to suggest investors look closely at the NFLX stock chart and warn this is a “buyer beware” kind of situation.

NFLX Stock Daily Price Chart

Following a gap-and-crap earnings reaction and failed rally attempt into overhead lateral price resistance, shares of NFLX traded to fresh relative lows. The better part of the past month has been spent consolidating those losses in a horizontal congestion pattern supported by the 62% retracement level off December’s corrective bottom.

Buying into this type situation often makes sense. But when a failure of this key Fibonacci level occurs, the fallout often leads to a full-blown challenge of the prior low. Potential buyers should be aware NFLX stock could have another large leg lower in front of it. And with stochastics warning of a bearish situation in shares, I might be one of those “Mindhunter” fanatics, but I wouldn’t subscribe to buying Netflix stock today.

My recommendation for NFLX is to put the stock on the radar for shorting on confirmation of a breakdown of pattern support. I’d use $281 to enter into the short Netflix stock position. That’s roughly 0.50% beneath the actual low of the price congestion. An 8% stop-loss keeps the exposure contained to a reasonable level and only exits if overhead resistance formed over the last month is broken.

Investment accounts under Christopher Tyler’s management do not own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.