Wednesday, July 12, 2017

NFLX Netflix Monthly Chart; Overbot; Rising Wedge; Negative Divergence; Upper Band Violation; Multi-Year Top in Play

Netflix is singing its swan song right now. The monthly chart says NFLX is placing a multi-year, yes, multi-year top currently. If you have enjoyed big profits on Netflix, it is likely prudent to say your good-byes and exit stage right.

The red lines show the rising wedge in play which is a very bearish pattern. The collapses from rising wedges can be quite dramatic. The red lines for the indicators show universal negative divergence sans that MACD line. The MACD line is trying to eke out a tiny bit more of upside strength in this monthly time frame. The RSI and stoch's are overbot agreeable to a pull back.

Price likely wants to retreat now, then come back up to satisfy that tiny MACD green line, which should then negatively diverge, where the top in price would be in. So perhaps a pull back in NFLX this month, a recovery in August, then roll over for the months and likely years ahead. The other outcome is that price would simply begin to roll over now and the multi-year top is printing now. The MACD line is at a comparable level as late 2015 and only misses being negative divergence by a hair.

NFLX has violated the upper standard deviation band (pink) so the middle band at 120 is on the table for starters and even the lower band at 69 as the long-term plays out. Netflix is above its moving average ribbon requiring a mean reversion lower.

Keystone was amazed that a lot of you millennials hold Netflix stock. All you under 30-year old's own a disproportionally large amount of shares in the top tech companies such as NFLX, AAPL, AMZN, FB, GOOGL and even TSLA. Setting Tesla aside, the charts of the other bigwig tech stocks, that have driven the broad stock indexes higher the last few years, are similar to the Netflix chart. AAPL and NFLX are set up to retreat first.

NFLX, AAPL and GOOGL will likely top out with a multi-year top and begin rolling over say, anytime now through October. AAPL will likely roll over first and lead lower with NFLX right with it. These three will likely roll over first and then followed by FB and AMZN a month or two later (say August-November multi-year tops). If you are young and your chest is puffed out since you have made a lot of money on Netflix, it is likely wise to cash-out. That goes for any of these hotshot stocks.

You can always scale out by selling one-third of the position tomorrow, one-third in two or three weeks, and then the final third in about six weeks. Let that money sit in cash for a while since it is likely more important to be out of the market rather than invested on the long side.

Keystone does not own any position in NFLX currently but will watch that MACD line to see how it develops and perhaps short Netflix in the near future. AAPL and NFLX are the two on the radar screen for potential shorts. Obviously, if the above stocks place multi-year tops and roll over in the weeks and months ahead as explained, the broad stock market will as well. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added at 7:20 PM EST on Monday Evening, 7/17/17: After the closing bell, Netflix earnings are released. Netflix reports a 1 cent miss on EPS and the top line is only in line. NFLX launches +9% to a new all-time high at 176.55 as traders choose to latch on to the higher guidance and the robust subscription increases. Netflix adds 5.2 million users versus 3.2 million expected. 4.1 million new subscribers are added internationally versus the 2.6 million expected. Domestically, 1.1 million subscribers are added compared to the 631K expected. Netflix should create joy in the tech and FAANG stock tomorrow. The NFLX monthly chart above is setting up for a potential long-term multi-year top (negative divergence across all indicators) as discussed so tonight’s joy may extend the topping process a few extra weeks. Loyal subscribers like the new content. At 4:53 PM EST, traders are throwing money at Netflix in the afterhours. NFLX jumps over +10.6% higher to 178.78. The stock is on fire with investors buying with total disregard for price. The Netflix subscription numbers have sent investors into a tizzy willing to buy at any price. A conference call begins in about one hour. The main question is will the subscriber growth continue? NFLX is up +11% to 179.37. The Netflix EPS miss and inline top line is completely ignored during the evening as analysts and television pundits tout the subscriber growth. The bulls are guaranteeing higher NFLX stock prices ahead. NFLX is up +10.6% to 178.80 as the Netflix conference call begins. Charts can only price in everything known up to the minute so after tonight's news, Keystone can update the chart above say in 2 or 3 weeks. Generally, the same analysis will likely hold with NFLX placing a multi-year top this year. That little long and strong MACD line forecasted  that a higher high would occur in price in the near-term on the monthly basis. The longer-term neggie d should remain in play.

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