Netflix Stock is Setting Up as Short Play Amid Buy-the-Dip Temptation

In a market coming under short-term pressure, some investors might be tempted to buy-the-dip. But subscribing to a short in Netflix (NASDAQ:) and profiting from an increasingly bearish situation off and on the price chart in NFLX stock looks even better. Let me explain.

Upcoming Earnings Look Huge for Netflix Stock

Source: Shutterstock

A questionable rate cut and retaliation from both investors and China to have played key roles in the S&P 500 index’s slide of 5% over the past week and heavyweights like Apple (NASDAQ:) and Caterpillar (NYSE:) dropping roughly 7.5% to 12% respectively. Caught squarely in the middle and off about 10% is NFLX stock.

But don’t let the average performance fool you — NFLX shares have been and continue to look decidedly more bearish.

Since Netflix’s mid-July earnings confessional crashed shares after surprisingly weak subscription data raised from Disney (NYSE:), AT&T (NYSE:) unit HBO, Amazon (NASDAQ:) and others, it’s been a tough environment for NFLX stock bulls. Over that period shares are off 16%. It gets worse, though.

If investors look back slightly longer to Netflix’s relative high in early July, shares have slid almost 21%. To be sure, that’s no small loss in shareholder value. But be warned, this bearish chapter appears to be just getting started.

NFLX Stock Weekly Price Chart

All markets correct at one time or another. And while Netflix’s 6,300% gain over the past decade might appear immune to that market truth, it’s not. In fact, with shares signaling out of a bearish flag centered on the NFLX base’s 50% level and beneath weekly chart lateral support, as well as the 200-day simple moving average—a larger bearish phase could be underway. I certainly wouldn’t bet against it right now.

My recommendation is to short NFLX stock today. I’d suggest a stop-loss of around 11% and size the short accordingly. This exit attempts to get a bearish short past any adverse daily chart volatility and only close the position if the recent pattern high, plus a bit of wiggle room, are broken.

If NFLX stock begins to move aggressively lower in the coming weeks and months, taking profits in zone support which stretches from $200 – $231 makes sense. This area is backed by the December bottom, 62% retracement level dating to Netflix’s three-year cycle low, whole number psychology and potentially sets up a powerful double-bottom price pattern. And in total, that makes for a much more interesting story-line for bullish investors to subscribe, too.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter and StockTwits.

The post appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Options Videos

    #TradeTalks: Options expiration Friday and sector rotation

    Sanctuary Wealth Chief Investment Officer Jeff Kilburg discusses options expiration Friday and sector rotation.

    2 days ago


    InvestorPlace is one of America’s largest, longest-standing independent financial research firms. Started over 40 years ago by a business visionary named Tom Phillips, we publish detailed research and recommendations for self-directed investors, financial advisors and money managers.

    Learn More