Background:
Netflix has recently enjoyed lots of bullish news in terms of expansion of its service internationally and in content it could offers. It is in Service Sector under Speciality Retail Industry (CATV Systems) and component of NASDAQ 100. Their direct competitors are Charter Communication (CHTR) and Time Warner Cable Inc (TWC).
With the backdrop of weakness in the broader market as shown in our Road Map (see chart link below), all of the above are in a process of topping out with potentially substantial move to the downside.
Netflix appears to be the weakest of the lot in the group as can be seen from the charts below which shows Netflix's Relative Weakness Vs, TWC, CHTR, Consumer Service and NASDAQ by being the first to have topped out in Dec 2015.
In addition Netflix is the most liquid of the 3 (NFLX, TWC and CHRT) making it the best candidate for considering a short trade.
Summary of technicals:
1. Assuming 2009 low as the wave 2 low, we appear to have formed 5 wave move to Dec 2015 high which could be larger wave 3 top accompanied by RSI divergence between minor waves iii and v.
2. It is at the upper end of the rising bullish channel suggesting a move back to the lower end is likely.
3. Dec 2015 high lines up with Fib confluence of waves i to iii projected from wave iv low giving 261.8% projection and Fib extension of Wave iii to iv giving 361.8%.
4. On weekly the RSI has dropped below 50 and the bounce seems very weak suggesting the downside could resume once the retracement bounce is complete.
5. If correct it could also give us sequences of lower lows and lower highs.
6. Downside has already retrace 38.2% of the move of the 2009 low to Dec 2015. So once the bounce completes we could expect it to retrace 50% - 61.8% that gives us possible targets of $50 - $65.
7. Previous drops in 2004 - 05 and 2011 - 12 took approx 60 weeks each. If we have similar time for current correction from Dec 2015 it brings us to Jan 2017 as possible time window for completion of this drop.
8. MOST important is that it has Earnings Announcement due on 18th April 2016. Can't be sure how this will turn out. However, if we do not have strong decline by then, it could spike a little higher but then reverse so it seem ideally placed for possible short.
9. Senior Executives has been selling Netflix shares they purchased via exercisable options. These insiders selling has been noted from Aug 2015 with price ranging between 92 and 127. Is that a sign of confidence?
Source: finviz.com/quote.ashx?t=NFLX
Conclusion: From the above it seems that there is potential for Netflix to drop in value by 50% from current price by Jan 2017 or sooner. The retracement bounce since Feb low is close to completion if not already. May be the Earnings data on 18th April might be the catalyst.
Action: Consider buying a Jan 2017 PUT with strike price of 40 (this seems to be relatively liquid and competitive spread (on 6th April before market opens it is quoted as $0.68 - $0.79).
Anything from $0.50 - $0.60 is acceptable ensuring that you do not risk more than 2% of the trading account.
If we get price drop to $60 we could see approx 6 time the multiple return. Only need it to drop to 90 area for 2 time the return of our initial risk.
Warning: This is my interpretation of price action using TA approach that I consider helps me the most but could be completely wrong. Therefore as always, please do your own analysis for your trade and risk management. You should follow this on Paper Trading Account till you feel confident to apply the skill to a live account.
DanV
danv-charting.com
Netflix has recently enjoyed lots of bullish news in terms of expansion of its service internationally and in content it could offers. It is in Service Sector under Speciality Retail Industry (CATV Systems) and component of NASDAQ 100. Their direct competitors are Charter Communication (CHTR) and Time Warner Cable Inc (TWC).
With the backdrop of weakness in the broader market as shown in our Road Map (see chart link below), all of the above are in a process of topping out with potentially substantial move to the downside.
Netflix appears to be the weakest of the lot in the group as can be seen from the charts below which shows Netflix's Relative Weakness Vs, TWC, CHTR, Consumer Service and NASDAQ by being the first to have topped out in Dec 2015.
In addition Netflix is the most liquid of the 3 (NFLX, TWC and CHRT) making it the best candidate for considering a short trade.
Summary of technicals:
1. Assuming 2009 low as the wave 2 low, we appear to have formed 5 wave move to Dec 2015 high which could be larger wave 3 top accompanied by RSI divergence between minor waves iii and v.
2. It is at the upper end of the rising bullish channel suggesting a move back to the lower end is likely.
3. Dec 2015 high lines up with Fib confluence of waves i to iii projected from wave iv low giving 261.8% projection and Fib extension of Wave iii to iv giving 361.8%.
4. On weekly the RSI has dropped below 50 and the bounce seems very weak suggesting the downside could resume once the retracement bounce is complete.
5. If correct it could also give us sequences of lower lows and lower highs.
6. Downside has already retrace 38.2% of the move of the 2009 low to Dec 2015. So once the bounce completes we could expect it to retrace 50% - 61.8% that gives us possible targets of $50 - $65.
7. Previous drops in 2004 - 05 and 2011 - 12 took approx 60 weeks each. If we have similar time for current correction from Dec 2015 it brings us to Jan 2017 as possible time window for completion of this drop.
8. MOST important is that it has Earnings Announcement due on 18th April 2016. Can't be sure how this will turn out. However, if we do not have strong decline by then, it could spike a little higher but then reverse so it seem ideally placed for possible short.
9. Senior Executives has been selling Netflix shares they purchased via exercisable options. These insiders selling has been noted from Aug 2015 with price ranging between 92 and 127. Is that a sign of confidence?
Source: finviz.com/quote.ashx?t=NFLX
Conclusion: From the above it seems that there is potential for Netflix to drop in value by 50% from current price by Jan 2017 or sooner. The retracement bounce since Feb low is close to completion if not already. May be the Earnings data on 18th April might be the catalyst.
Action: Consider buying a Jan 2017 PUT with strike price of 40 (this seems to be relatively liquid and competitive spread (on 6th April before market opens it is quoted as $0.68 - $0.79).
Anything from $0.50 - $0.60 is acceptable ensuring that you do not risk more than 2% of the trading account.
If we get price drop to $60 we could see approx 6 time the multiple return. Only need it to drop to 90 area for 2 time the return of our initial risk.
Warning: This is my interpretation of price action using TA approach that I consider helps me the most but could be completely wrong. Therefore as always, please do your own analysis for your trade and risk management. You should follow this on Paper Trading Account till you feel confident to apply the skill to a live account.
DanV
danv-charting.com
