Given that NFLX is always the first large-cap growth stock to report earnings, both its results and the stock’s initial reaction tend to be closely scrutinized — especially today, following the sharp decline so far on Wednesday. We’ve highlighted this chart many times over the past year for clients because NFLX has repeatedly formed bearish patterns that have failed to follow through to the downside. In fact, every apparent breakdown has turned into a bear trap, sparking powerful reversals in the opposite direction. Now, however, the stock is trading back below the July and late-September lows — levels that previously produced strong rebounds. With a noticeable “air pocket” of light support beneath this area, that zone could be tested quickly if momentum continues to unravel. The key question now is whether today’s action truly shakes the confidence of investors, who have been well-conditioned in the habit of buying weakness — particularly when the stock looks its worst technically, as it does now. The next few days will be an extremely important test: will that familiar demand dynamic reappear once again, as it has so many times over the past year? To appreciate the scale of this potential top, we can redraw the price action from May through today. Doing so reveals a larger bearish formation that looks strikingly similar to the setup in mid-April — just before the market-wide reversal began. The critical difference this time is that NFLX last made a new all-time high back in June, while the S & P 500 and other major indices have continued to push to new highs through October. In short, NFLX has clearly underperformed the broader market since then. Despite these concerns, there are two constructive aspects worth noting. First, as just discussed, the stock has repeatedly managed to hold near otherwise treacherous breakdown zones. Second, it has consistently respected its 200-day moving average during prior pullbacks — most recently in April, and again now with today’s decline. If this uptrend is going to persist, NFLX will need to stabilize and hold that line once more. If the stock can once again avoid a major pattern breakdown and successfully rebound from the 200-DMA, it would keep NFLX confined within the same broad range that has defined its trading since summer. That outcome could set the stage for another move higher — potentially allowing the stock to challenge resistance in the $1,250,$1,275 zone. As this weekly chart shows, NFLX has a strong history of breaking out from similar consolidations, often following through to new highs. For any of that to happen soon, the first step is simple: hold. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
Netflix is trading near levels that could make or break the streaming giant