Three Breaks And You're Out For NFLX?
By: Julius de Kempenaer | April 15, 2019
Since the start of the month, NFLX is lagging the S&P 500 index by more than 5%.
This is following the, relative, weakness that entered this stock after s strong start of 2019 where NFLX ran from $ 230 to $ 370 but then started to move sideways while facing heavy overhead resistance around $ 380.
From January to March the subsequent highs were still higher than their predecessors, albeit only marginally. Failing To Push Through Resistance
The failure to push really higher was already an indication of weakness. This weakness was confirmed by the first high in April coming in lower than the peak at $ 379 in March. It was also the first time that NFLX failed to touch the upper boundary of the shallow rising channel that shows up from Jan/Feb onwards.
Looking at various trendlines that could have been drawn since the start of this year I see three potential support lines. In the chart above the first two are dotted red and the last one is solid red.
The initial trendline emerged out of the late December low and connects that one to the first low in January. Two touch trendlines are very dangerous and notoriously unreliable and this one gave way shortly after the low was in place.
The second trendline emerges out of that January low and has more touch points making it a bit more reliable but this one also lasted only shortly and was broken downward at the end of February.
The third trendline, the solid red support line, has three clearly marked touch points at the lows since February which makes it the most reliable one of all three.
At Friday's close, NFLX broke below this rising support and is now on its way to challenge/break near $ 349. All in all the chart of NFLX is sending a lot of warning signals and the stock should be approached with caution. A break of the support levels clustered around $ 340 will very likely cause an acceleration of the decline.
Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
Creator, Relative Rotation Graphs
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