Let’s take another look at Netflix (NFLX). Is there a trade?
Discussed in this article: Netflix Inc. ( $NFLX )
I want to talk about Netflix ( NASDAQ:NFLX ) today. I mentioned this yesterday, it was basically a gap and crap, I think I might have mentioned this in the Chart of the Day, if not I apologize, I forgot.
So the stock gaps up and you can see what kind of volume it hit, huge, massive volume. It closed on the low of the day; now this is important, within a dollar or something like that. So it closed on the low of the day, big massive dump, I’m sure you probably heard Carl “the tweet” Icahn said that he’d cut his steak in half, and I’m sure that was him selling up there, which is fine. It should have been you and me and everybody else too.
When a stock is trending like this has, it’s quite overvalued and I know some you Netflixions would think it’s not overvalued, but memo to you, it is. So this stock gaps up, whenever you see a stock make this kind of run, it was below $100.00, like $75.00 or whatever it was at the start of the year; it runs up and hits basically $400.00, which it did Monday night intraday; that’s a stock that you want to sell.
That was then, this is now. What were we looking for, what are we looking for? We see this massive volume spike; we’re looking for signs that this is capitulation. In other words all of the buyers have bought, all of the seller’s, when they become sellers, all of the seller’s finally sell, hence huge volume, and now the stock is ready to move higher again; it’s a big crescendo sell-off.
We didn’t see that, we didn’t see that here, and it’s not because of this, and it’s not because of that. It’s because of this, because see, if this sell-off on Monday, this massive dumpage, if this was really the end of the selling, everybody sold, then the stock would be reversing more, the stock would be up more. It’s really not; it’s not even up 2 percent after getting absolutely crushed yesterday.
So what is that telling us? It’s telling us a couple things; first of all there’s a whole lot of pain in this chart. Remember, every share that sold on the way down, somebody’s buying that puppy. So there are a lot of folks that are still looking to sell, they wish they didn’t own this stock so they’re selling. At the same time the buyer’s aren’t really that plentiful, the stock looks like it’s probably going to print a little bit higher number than it did the day before earnings, Monday.
But that’s not significant, I mean that’s not indicative of a reversal; instead it’s just kind of a pause in the downtrend. I was looking for a short set up here but haven’t seen one yet. I thought maybe we’ll get a little bit of bounce, and then it’ll dribble over and continue selling. That hasn’t happened either, so that actually sets us up for a potential trade here.
First of all the less likely one; the high today was $335.00, if Netflix ( NASDAQ:NFLX ) moves above that level I wouldn’t look for a whole lot, but you could probably get a little bit more upside there, so maybe it’s worth a long. What I would be looking for instead is this; if Netflix ( NASDAQ:NFLX ) breaks down, I’m talking about tomorrow, the next day, whatever, if it breaks down below 317.00 then the next likely bounce will be right around $300.00.
Now that’s only 17 points, but if your trading options on that, that can be a pretty good move; 17 points if you are short some calls or long some puts can be a pretty good move for you, you wind up making money that way. But expect some type of a bounce at the 50-day moving average, just kind of reflexively, because that’s what traders do.
But if we start getting this kind of move, whether this first comes down and bounces or whether it just continues up a little bit, if you start getting this kind of move and you see this stock rolling over, and then ultimately trading, not like spiking, but if it just kind of starts drifting below the 50-day moving average, you’re going to see Netflix ( NASDAQ:NFLX ) pull back a lot more, so I don’t want you to be long this stock.