Netflix – a future short opportunity?

Netflix

Netflix (NASDAQ:NFLX) has been rising for weeks in a wide channel. Today, we arrived back at the top and bounced off of it. A longer setback would be in line with the previous pattern. Here you can see the channel. It has significance because Netflix has already touched the top and bottom trendlines several times this year.

In the weekly chart, the Relative Strength Index (RSI) is still running up. The last few weeks Netflix shares have experienced an extremely strong rally. We have not seen that so far in the channel. However, there was also one week at the beginning of the year when the prices ran to the upper trend limit within a few days.

Nevertheless, the weekly chart looks interesting. Perhaps a short entry makes sense now. Let’s zoom in for a moment.

Netflix in the daily chart

Aha! Here things already look different; we can even see a red dot of selling in early September. But today is green! That means this is probably still not a really good short entry. We would be trading based only on this test of the upper end of the channel. Is that enough of a signal to go short?

The RSI in the daily chart looks a bit better for a short. However, we need a lower high for a short position to make sense based on this chart. There is no signal here except for the red dot.

Netflix in the 4-hour (H4) chart

The first thing that stands out in the H4 chart is that we have a large accumulation of red dots. So there has been regular excessive buying and then the buying panic has subsided again. Twice right within three candles we have an overbought and the end of the overbought. This is already unique for this 4-hour chart.

The RSI in the H4 already looks better for a short. We have a bearish formation and are already marking lower lows. If Netflix drops below the recent lows at around $590 on the chart, things will start to look better for shorts.

Conclusion

Nonetheless, we don’t have a short entry just yet. The arguments aren’t quite strong enough. We have only reached the upper end of the trend channel, but it’s not impossible that Netflix may also break out to the upside from there. It would take some guts to go short here after the last few weeks went so well for the company. 

I did it anyway with a very small position. My stop loss is at just over $630. So if the price breaks out, the idea is immediately over. But if the price runs down toward $500, the idea could be worthwhile. We may also only reach the middle of the channel at around $555. Netflix has lingered there for a while recently. So if you want to act cautiously, practice patience and only go short when we see prices below $590 US.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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