Netflix, Inc. (NFLX) Stock Will Suffer a Bigger Correction
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You’ve heard the saying “the show must go on.” However, one look at Netflix, Inc. (NASDAQ:NFLX) shares this past week, and I’m more included to say “fin.” NFLX stock longs are too vested in a wobbly bull at the moment.
Source: Via Netflix
Let me explain.
I wrote about NFLX stock two weeks ago, and to be quite honest, I didn’t think I’d be doing a sequel of sorts so quickly. But then something happened to Netflix’s chart.
The thing in question had large-cap tech stocks like Netflix and Facebook Inc (NASDAQ:FB) hemorrhaging, and accompanied by flimsy analyst insight.
Personally, I like to call a spade a spade, and I don’t mind if I’m alone in labeling the event an algo-driven affair. More importantly, it’s time to appreciate the price action as a warning to be taken seriously.
Decent technical damage has been inflicted upon NFLX stock. Knowing most tops (and bottoms, for that matter) don’t come with a bow-tied RSVP, I’m rethinking what it means to be a Netflix bull. That means being smart if you’re looking to buy into pullbacks, and knowing what positioning could come back to haunt you.
Netflix’s Chart
The last time I wrote about Netflix stock, the emphasis urged bullish investors to be cautious based on chart patterns being mostly fulfilled and both the Bollinger Bands and stochastics warning of an overbought condition.
The price warning, other than recommending a short, couldn’t have been timelier as it immediately preceded the June 8 route in tech plays like NFLX stock. Now the problem is the stock’s inability to regain the 50-day simple moving average, which is acting like resistance as a bearish flag takes shape.
Coupled with a price break of the uptrend’s last meaningful pivot low from May, the technical forecast does look a bit scarier than last time with greater potential for a larger correction to develop. My best guess right now is that the $133-$140 area, if tested, would draw our interest in buying Netflix.
How to Trade NFLX Stock Here
The good news is if our outlined support area from $133-$140 doesn’t get tested, you can still position in that area and profit with a bull put spread.
One idea which appears to be reasonable is the Aug $135/$130 put spread. Priced for 85 cents with Netflix shares at $152.05, the position is a potential income generator, as well as a way to buy shares much more cheaply.
If NFLX stock falls below $130, you could be on the hook for a max loss of $4.15. But if buying at a deep discount is your thing, that type of reaction won’t scare you.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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