Netflix Down 15% – Is It A Trading Opportunity?
NFLX gapped down 15% after earnings growth was lower than expected. Can we construct a low risk/reward trade opportunity from this?
“Hey, a very good afternoon to you, warm day today across the UK, hope you’re enjoying yourselves.
Netflix is what has caught my eye today, NFLX, it’s down about 15, 16% on earnings. Now the reason for that according to the analysts is that they basically haven’t grown as much as expected, I think they were expected about two and a half million subscribers gain into the quarter, and they got something like 1.6 or 1.7 or something like that, so a little bit less than they expected which has caused the 16% or so drop. However, they had a bit of a price increase over the quarter, about a £1 or $2 or something like that and that was all put out in the media and hyped up and so that is really what people are putting it down to, the slight price increase, people becoming a little bit less likely to sign up because the media’s putting a negative slant on it.
However, you know, the fact of the matter is they’re a growing company, as the internet speeds are getting quicker they’re getting more content ion there, you know, it’s a new way of consuming media and I think it’s a popular way of consuming media. So anyway putting all that to one side, our thoughts on what the company’s like doesn’t really affect our trading decisions but sometimes you have a bit of background on what’s going on. Great story stock, it overshot itself to be honest when it got up to 130, it was very very carried now. Now we’ve retraced and we’re just hovering in this sort of 80 to, or 85 to $100 range for the past few months, we haven’t really got any legs either way and which right at the bottom of this range now. This today is today’s candle obviously and you can see we’re right at the bottom in this 85 area, right on this support level.
Now what’s interesting to me is if you throw up onto here a 100-period moving average which, you know, we don’t use the moving averages to base our trade decisions in as such unless it’s a statistical significant back tested strategy, however, you know, sometimes we can frame the trade a little bit and we can look at it and say, you know, other people are looking at this, we’re interested in looking at this funds and looking at this, you know, if they believe that this story is going to carry on and they’re going to pull the subscribers back up in the next quarter, you know, we could be well above 100 again, or even if we don’t the fact just the net natural trading range could be ping-ponging back between 100 and 85. So I’ve got a 100-period moving average here and actually Netflix has respected that quite a lot, you can see here we pulled back to that and then as we pushed further on we had a cluster around it, yeah we had this horrible dip through and that was at the beginning of the year when everything was getting slaughtered, a good bounce back up but you can generally see, you know, of how we’ve traded it.
So what I’ve done is, and again I don’t, I’m not a particular huge fan of indicators for confirming your thesis but let’s have a look, if you stick 100-period Bollinger Band over this you can see how often we’ve tagged the upper and lower bands and we’ve bounced off, in fact, you know, since the story really took off we’ve only tagged the Bollinger Band once before on that January sell-off, we nearly got to it last month but you know, now we’re testing it again. So okay what am I thinking, what I’m thinking this could be a potential buying opportunity, now you’ve got to be cautious, so let’s have a look at a 15-minute chart and see what’s happened today.
Okay. We’ve gapped down, now let’s look at five minute actually, that’ll give us a better view and if we zoom in we can see the action. Okay, so bearing in mind now it’s quarter to six I’m doing this so we’ve got the whole afternoon of trade to go on this, but we can basically say that we have a range here between, you know, $86 and let’s do another one down here at $84.80, alright, that’s the sort of range that we’re looking at. Now I want to see a breakout of that range. Now obviously if we break to the downside I’m not going to get involved in it, let it run, if it wants to do two or three days down move that’s fine, another trade will probably set up after that a different type of trade, however, you know, if we start to close above the highs, or at least above this 86 level, even if we… well perfect if we close above the first opening sort of 20, 30 minutes high but if we close above the 86 level then that becomes a nice trade that you can qualify the risk on.
Taking a long above 86, a stop below that range today, 84.60, it’s not a big stop, $1.50, something like that, 150 cents, not a huge amount of money but then if you look about the potential reward you’ve got, you know, if people buy this and we start to get a two or three day move and look to take some off at about 90 and then we, you know, we could even run on back up to 100 at some point and obviously having a stop below there makes sense in terms of managing the risks. So Netflix is what I’m looking at, let’s see where it closes today, that’s worth watching, it’s on the radar, it’s moving, it’s volatile, it’s going to be a good trading vehicle.