While Netflix (NASDAQ 🙂 has close to 200 million viewers worldwide, rather than resting on its laurels, the streaming entertainment giant continues to push relentlessly to increase its market share.
This laser focus on increasing the number of users is an important reason that, despite being praised many times for its negative cash flow, its share continues to rise. But because of the habit of burning billions of dollars annually to create new content, and with a debt of $ 14 million, momentum is not always stable.
Since June 2018, Netflix shares have been bouncing between bears and bulls, with the $ 400 level appearing to be out of range. That is, until February.
But in March, the stock was pressured by the wider sale of the corona virus, reaching the lowest price of $ 290. From then on, Netflix climbed along with the rest of the market.
But considered by many investors to be the perfect COVID-19 lockdown stock – a very affordable way to be entertained while hiding in place when cinemas, clubs and shops were all closed – unlike many other stocks, against May 18, Netflix had hit new all-time highs, breaking the previous $ 400 resistance in the process.
While Netflix has already proven itself for many, despite the questionably high level of debt and the likelihood that some of its subscribers will evaporate once the lockouts have ended, the stock currently appears to be going down due to shifts in demand and offer.
The all-time high was only 2% higher than the intraday peak of April 16. Past gains between the peaks were 55.8% between September 24, 2019 and February 19, 2020, but only 14.4% between February 19, and April 16. The momentum is clearly slowing down.
Also note that the May 27 low is only 1.1% above the April 29 low, which follows almost the entire movement from its recent peak, adding to technical signals that the upward trend is at stake is.
This weakening pattern has all the telltale signs of an H&S summit:
The small advance of the head
The loss can be seen in the previous move
Decreasing volume in contrast to the rising price
Both the RSI and the ROC also cause negative momentum differences
A MACD reversal, which clarifies that the price drops over several meters
The pattern is complete when a decisive drop below the USD 390 level occurs. This would show that traders realized that the price had been overvalued when Netflix got into a very favorable light due to a lockdown. But with a reopening economy that allowed the spread of capital to depreciated assets, the belief moved to a different place. the likely return move to show that investors really changed their minds about the trend.
Moderate traders are likely to be satisfied with a drop below the USD 400 level, the psychological round number where the trendline converges between the foregoing and the lows. While these traders would also likely wait for the price to yield a corrective rally, they would do so for better participation, not necessarily to test the resistance again.
Aggressive traders could also short the stocks if they hit $ 450 where the head confirmed the resistance of the shoulder. Should the price drop from that, aggressive traders could join other traders in a downward breach from the H&S summit.
Trade Example – Aggressive Short Position Setting
Admission: $ 450
Stop-Loss: $ 460 – above the May peak
Risk: $ 10
Target: $ 400 – psychological round number that meets the assumed level of the neckline
Reward: $ 50
Risk: reward ratio: 1: 5
