Wednesday, September 28, 2011

Netflix: From Top to Bottom

While scouring the news for links I came across a chart posted by Blain over at TraderMike showing the extent of Netflix's plunge. His chart neatly shows how quickly yesterday's hero can turn into today's villain. It's also a good example for not letting a winner turn into a loser.

The Zignals Active Screen scan can help protect such losses.  As part of the screen, a daily email lists stocks qualifying under the filters of the Active Screen, but also the stocks which fail to qualify. In our analysis. Netflix (NFLX) featured in the active screen listings from December 2010 through to August 11th 2011, but eventually was dropped by August 23rd.

But even before NFLX's fundamentals led it to be dropped from the Active Screen, it's chart had already pointed to a significant shift in trend. The chart below dates from August 11th.

Zignals Chart Image

It was clear back then that the trend which had sustained itself from March 2009 was cooked. Especially when the break dropped the stock back to its 200-day MA, a test last achieved in the early part of 2010.  This in itself isn't bearish, but what followed in the days ahead was:

Things started brightly with the bounce off the 200-day MA at [1]. Given the period of time which had lapsed between tests of this MA the expectation would have been for a strong rally. Unfortunately, the honeymoon was brief and NFLX quickly gapped below its 200-day MA to [2]. At this point the decline from $300 was becoming something more than a pullback. Bulls attempted another defense and a rally emerged from $205 to regain the 200-day MA. But by now $240 was strong resistance as what was once demand (back in June 2011) turned into supply. The stock gapped below its 200-day MA for a second time and failed to attract fresh buying because of its inability to stay above this critical long term trend measure. When the company announced lower forecasts its goose was already cooked technically and the resulting gap down to the $170s was just icing on the cake.

Zignals Chart Image

The pain didn't end for bulls on the gap. It slipped further to $130 as it looks to be catching its breath. Although don't be surprised to see it take another leg down towards $100.

Certainly NFLX trading at $300 feels like a long time ago, not something which was true just a couple of months ago.

Always make full use of the tools available to you. A combination of Active Screening, Real-Time SMS Alerts and Charts can keep you up to date with your investments without having to watch the market 24/7.


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