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Today’s Trading Edge: Netflix plans on doubling original content and forms butterfly pattern


Netflix (NFLX) shares initially dropped after the announcement that they will put profits on hold and focus on international markets. Netflix is experiencing slower growth as net subscribers in the U.S. for Q3 came in at 3.4 million subscribers, slightly higher than the Q2 print of 3 million, but much lower than the 4.3 million Q4 2014 and 4.9 million Q1 2015 paid viewers.  Some analysts view this business decision as a good one in the long-term. 

Price action on the NFLX daily chart shows that the recent bullish trend may be taking a hit following reinvesting news. Price may have also formed a bearish butterfly pattern. Point D is targeted with the 161.8% Fibonacci expansion level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C leg. If valid, we could see a reversal target the 50-day SMA, which currently trades at $111.66. Major support will come from the $95 to $100 zone.

If we see a major collapse, only a break of the $85 level would open the door for a deeper correction. Deeper support may target the April 16th low of $75.1.    

If the bearish reversal is short-lived, upside may target psychological $140 handle. Further upside by the end of 2016 may target the $156 level.

The Trade: Sell NFLX at $126, with a stop loss at $129 and a take profit at $114.  The Risk/Reward Ratio is 1:4 

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