COVID-19 has been very good to Netflix (NASDAQ 🙂 – both the company and its stock. Faced with the prospect of indefinite lockdowns, people happily subscribed to the company's streaming entertainment offering. So now that the global economy is opening up again, it makes sense that now that they are free to leave their home, some subscribers are likely to close their membership.
Investors are also likely to shift their focus, from stocks that are set up to perform better in a closed world, to cheaper stocks that perform worse while the population is hiding.
Also, the lingering problem of Netflix customer saturation may have gotten worse after the pandemic: Anyone who hadn't previously signed up for the corona virus but thought about it probably did in the end. You could convincingly argue that the one who didn't get to the streaming site is unlikely to do so right now (unless of course a second wave pops up that could change that comparison).
In addition, time is not on the side of Netflix because competition – from Disney (NYSE :), Apple (NASDAQ 🙂 and Amazon (NASDAQ :), among others) – is crowding out the market and likely to siphon customers. And raising prices to make up for the declining cash flow – which could be an immediate fix – is getting more and more difficult compared to the increasing competition.
Still, not everything is lost for Netflix. A healthy potential market remains for broadband and device customers, many of whom are international. To be clear, we're not saying the stock is a loser. We are just waiting for better ratings.
A look at the graph can help determine our parameters.
NFLX Daily
As of Friday, the Netflix shares have fallen for four consecutive days. On Thursday and Friday, the price fell below the upward trend line since the bottom of March.
This is the second delay of the rally since April 28 (dotted line). As the trend continues to rise, with higher highs and lows, we advocate for weaker growth. For the time being, however, we are only looking at a relapse, not at a reversal.
The short MA of the MACD fell below the long MA, a major trigger after reaching the highest levels since January 2018. Indeed, this indicator is building the strongest case for a relapse in more than two years.
Both RSI and ROC went downward, showing that a slower RSI confirms the more sensitive ROC in the reversal of momentum.
Although we expect a decline, we recognize that there is solid support at the $ 350, as can be seen more clearly on the three-yearly weekly chart.
The price completed a significant symmetrical triangle, between June 2018 and March 2020, bullish after the previous upward trend. So a decline now fits into the expectation of a return move to retest the integrity of the pattern.
Trading Strategies
Conservative traders will likely wait for the price to bounce off the triangle, show support and join the primary trend.
Moderate traders will fall into a position upon reaching the supposed support, but without waiting for confirmation.
Aggressive traders would likely bring down the stock.
Trade example
Admission: $ 450 – after an exuberant, broader market rally pending reopening economies
Stop Loss: $ 460 – above its all-time high on May 19
Risk: $ 10
Target: $ 400 – number of psychological rounds above the February highs, the resistance of which received support in April
Reward: $ 50
Risk: Reward Ratio: 1: 5
