The continued increase in coronavirus cases has broken hopes of a V-shaped economic recovery. But not all stocks have suffered. As the past three sessions on negative news about COVID-19 wallowed, Netflix (NASDAQ 🙂 added 4.1% in value and rose to just 0.1% of the May 15 record for five consecutive days.
The streaming entertainment provider not only won when the broader market surged earlier this year, but also surged as key indices fell early this month due to fears of a second wave of coronavirus. This could indicate that Netflix's stock is a second wave higher.
NASDAQ rose 29% between March 17 and April 16, while Netflix rose by more than 50%. A prolonged or recurring lockdown would benefit subscription retention and growth, perhaps even more than the first wave of COVID-19. A return to a lockdown can have an even greater psychological impact on consumers who may be looking for escapism.
Neflix Shares
Netflix sets up an H&S Summit. The RSI still supports that scenario and shows diminishing momentum. To be clear, the stock can still top if the broader market sees a sell-out before resuming its upward trend.
However, if the stock reaches the level of $ 460, it will blow out the pattern, creating bullish momentum. All traders caught in the crossfire should get out of the way quickly if not with the blows as Netflix goes higher. Conversely, a drop below $ 400 would increase the downside risk to $ 300. Friday's trading pattern developed a potential Hanging Man, as bulls managed to ward off a bearish attempt to cut prices drastically.
While it was intuitively a bullish pattern, a close below Friday's real body – the price range between the open and the close – would be bearish. This would suggest that buying on Friday may have been just a short press. If prices kinked, the next test would be $ 400, with bulls having the opportunity to regroup and slide down a second wave.
Trading Strategies
Conservative traders would wait for the price to close above $ 473, with a filter of at least 3%, to reduce the chance of a bull trap. Then they would wait for a return to retest $ 460 and find that this ceiling has turned into a floor.
Moderate traders would be satisfied with a move to $ 464, relying on only a 2% filter, and then waiting for a withdrawal for better imports.
Aggressive traders risk a contrarian, short position, assuming that positions were built up after two failed attempts to top the USD 460 level in April and May, while the RSI expects weakening progress since the highs of February. Patient traders would wait for a lower close today and then briefly if it is lower than Friday's real body. Then, depending on their preference, they could wait for the price to retest the Hanging Man highs for better access.
The disadvantage is that the market does not necessarily have to do this. It could go down instead, leaving traders to chase, give up or go short after confirming the Hanging Man candle. This would not entail the risk of hunting or losing the trade if there is no return movement. But it requires a much larger stop-loss or traders are likely to be dragged out of position.
Trade Sample, Aggressive Short
Admission: $ 450
Stop-Loss: $ 456 – above the May 19 high
Risk: $ 6
Target: $ 402 – above the psychological $ 400 round number and the location of the April and May lows
Reward: $ 48
Risk: reward ratio: 1: 9