I was a tad premature in calling the end of the bounce in Netflix last week. With 14% of the float sold short, NFLX is presumably enjoying some short covering action as the rest of the market continues to rally from oversold conditions. Among the FANG stocks, Amazon and Facebook have been doing the heavy lifting while NFLX is struggling with a key resistance level around $94.
This is no ordinary resistance zone; it is the Volume Profile Point of Control (shown on the accompanying chart), which represents the level of highest volume over the last 300 days. If NFLX can surmount this level, it could reach triple digits again. That’s a big ask, however.
As I noted last week, the fundamentals of the company are problematic (negative cash flow) and there is a technical ‘black hole’ between $69 and $75. In bearish regimes, unfilled gaps are the technical targets. This gap area is a powerful magnet and will eventually suck price into its vortex. It is a matter of ‘when not if.’
How To Play It:
Currently NFLX is stair stepping up in a 45 degree channel. A break above $95 should generate a rush of short covering. If you are looking to time the resumption of the downtrend, watch the financials (XLF) along with Amazon. Consider drawing a trendline under the lows of this rally for these two instruments. When those trendlines are broken, NFLX will probably be a good short. Until then, laissez les bon temps rouler.
www.daytradingpsychology.com (Peak performance coaching for private traders)
www.trader-analytics.com (Services for RIAs, banks and hedge funds)