NFLX Buyers Running the Show

In yesterday’s AM Meeting we talked about NFLX. It appeared to be getting ready for an explosive move. The narrowing of its trading range as well as several tests of both the top and bottom of the range set it up for a large move when it finally broke. I laid out the bear case on a break through 180/179 for a move down to 172 and then the 160s. Then I laid out the bullish case on a move through 186/187 for a move to 192 and 200. Whether it broke to the upside or downside I wanted to be mentally prepared for a large move. By mentally preparing for a large move you will ensure that you stick with a position longer and you will tend to be more aggressive in taking on risk.

The long side trade triggered on yesterday’s Open with a powerful drive through 186. If you look at the chart below you can see that NFLX recently spent several days in a 7 point range. Each time it touched the top of the range it failed to hold above 187. So my expectation was that if it was able to sustain price above 187, that it would have a large upside move similar to its move on 3/13 to 195.

Yesterday’s move to 192 was enough strength for me to view NFLX as a swing for a chance to test 200. This morning when it was gapping lower with the market it offered an opportunity to evaluate the strength from the prior day. One of my favorite setups is when a stock gaps lower on Day 2 after a very powerful up move on Day 1. This usually happens if the broader market is showing weakness. What makes this setup so appealing is you get a look right on the Open how committed the buyers from Day 1 are. In the case of NFLX today it went positive fairly quickly and then drove up to 196.

My expectation with another powerful opening drive was that NFLX would be testing 200 in the next day or two. But when NFLX reversed powerfully taking out the 192 support I thought best to get flat and re-evaluate. I would like to see a tight range day tomorrow between 189 and 192 before another run at 200.