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NFLX Trade Idea

NFLX (Netflix Inc.) offers an aggressive short entry here around the 323.87 level in anticipation of a breakdown below this bearish rising wedge pattern with an alternative, more conventional entry to come on an impulsive break below the pattern. While shorting a stock that is still clearly in an uptrend without any evidence of a reversal & still above its uptrend line is a more aggressive strategy that runs an increased chance of the trade not panning out, it may offer a more favorable entry price. One could also wait for an impulsive break and/or daily close below the rising wedge pattern to initiate a short position or add to a partial short position taken inside the wedge.

NFLX daily March 13th

NFLX daily March 13th

The price targets for this trade are T1 at 287.90, T2 at 251.10 and T3, which will be the first (to be hit) of either the primary (yellow) uptrend line generated off the July 2016 lows or the 232.00 level, which is slightly above the bottom of the very large & technically significant gap from January 23rd, which I expect will be backfilled before year-end. The maximum suggested stop for those targeting T3 is any move above 353.55 with a suggested beta-adjusted position size of 0.85.

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2018-03-13T10:35:07+00:00Mar 13, 2018 10:35am|Categories: Completed Trades - Short|Tags: |8 Comments

8 Comments

  1. stock51 March 13, 2018 11:40 am at 11:40 am

    Great Call on NFLX, and the top of the charts

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    • rsotc March 13, 2018 12:26 pm at 12:26 pm

      Don’t jinx it 😉 All kidding aside, it’s only a great call if & when the final price target is hit before the max. suggested stop but I will like the trade even better if & when NFLX takes out this 60-min rising wedge with conviction.
      I’m still leaning towards new highs in the SPX but open to any new developments that the charts dish out & more importantly, I think we are at one of those stages in the broad market where market breadth starts to deteriorate as fewer & fewer mega-caps stocks lift the indexes higher with an increasing number of individual stocks breaking down & starting their own significant corrections or bear markets.
      As such, I will continue to post a mix of the most attractive long trade ideas along with the most attractive (bearish) short trade ideas for the foreseeable future. Best of luck on NFLX if you took it or plan to soon.
      I also owe props to @jegersmart for pointing out the NFLX setup in the trading room last week.. thx!

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  2. hengliu0714 March 13, 2018 12:16 pm at 12:16 pm

    This is the only stock that I don’t understand in the market. NFLX is a good company, but I just can’t agree with its current price. I will be willing to buy around $200, but definitely not $330 level. When it compared with DIS(same Market Cap), I prefer the latter.

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  3. Jarret.jack2 March 13, 2018 4:17 pm at 4:17 pm

    I disagree, there are a lot of HF and other institutional investors that believe in Netflix and I doubt they will sell anytime soon and send this down 30+ percent. Just seems loony if you ask me.

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  4. Jarret.jack2 March 13, 2018 4:21 pm at 4:21 pm

    So you are saying that a large cap like Netflix that’s beloved by consumers and growing subscriber numbers like crazy will drop 30+%? Seems like a stretch

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    • rsotc March 14, 2018 6:12 pm at 6:12 pm

      Keep in mind that all known fundamental variables (current/most recent subscriber growth rates, etc..) plus most, all & often then some, of the growth expectations for the foreseeable future are usually priced into a stock after an extended run. Yes, that is a general statement with exceptions but at this point in the market cycle & factoring in the performance of NFLX over the past couple of years, I believe that the most optimistic scenario, and quite likely then some, is already priced into NFLX.

      Fundamentals, aside, the 30% drop that I believe NFLX will experience before rising another 10% or more is based almost exclusively on the technicals (charts). NFLX is one of just a handful of the beloved FANG stocks in which people believe can do no wrong and just as the old saying regarding the end of a bear market goes “It’s always darkest just before the dawn”, I like to say that the inverse of that holds true, where “the sun is always shining brightest just before dusk”: Despite historically extreme high valuations, the 85% rise in NFLX over the past 3.3 months, a not-exactly svelte P/E ratio of 257, etc., people seem more interested in buying NFLX than shorting it now, as evidenced by the fact that the two most recent short interest levels were the lowest in at least a year.

      As with all trade ideas on RSOTC, this one will either pan out or not. I share what I see & while the trade ideas are not buy or sell recommendations, simply my take on the charts & where a stock is likely headed, I would certainly agree that if my analysis on a stock, ETF, sector, etc.. does not mesh with someone else’s, they should pass & wait for a setup that aligns with their own analysis & trading style. As always, your feedback & any viewpoints that differ from my own are not only welcomed but encouraged.

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  5. jegersmart March 14, 2018 11:45 am at 11:45 am

    Hey jarret, NFLX added 7.x% subscribers in Q4 reported in January, since then the stock is up over 20%. Was it too cheap in January or is it too expensive now? If you zoom further out, NFLX had 94m subscribers at the start of 2017, and they have 118M now. That’s an increase of about 25%, but share price rose from $128 to $325. Was it too cheap then or is it way too expensive now? I am not sure about this quarter, but an almost trebling in share price from an increase in subscriptions of 25% really seems like – to borrow your word – a “stretch”…..?

    Neither scenario means anything concrete otherwise trading would be easy. The price could perhaps treble from here based on revenue increase of 25% in the next 12 months…..I wouldn’t be buying it on those numbers but there are many many that did last year……hopefully they take profits along the way:)

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