Netflix NFLX Pushing into Gap after Big Drop

Oct 20, 2014: 11:25 AM CST

Netflix shares (NFLX) suffered a large news-based drop last week that took price all the way down to a key monthly support target.

Let’s take a look at a potential buy opportunity as shares push into the gap or “open air” created from the plunge.

From last week, we saw a gap down into the $330 level on very high volume as buyers swooped into purchase shares at a deep discount to the prior $440 to $490 range from June to present.

The opportunity now is to play aggressively (buying shares) into the movement higher as price completes at least a partial fill of the gap from an oversold bounce.

When playing aggressively, remember to exit positions if price does something unexpected – there is no rule that states that price is required to fill a gap or even complete a partial fill (like a 50% fill which would be near the $390 per share level).

We gain additional insight from the Monthly Chart which shows a key moving average providing a floor of support:

From a strong and stellar uptrend beginning late 2012, shares multiplied from the $50 per share level to the peak shy of $500 per share.

There have been two large retracements against this non-stop uptrend – both in 2014 – and each time buyers swooped in to support the stock at the rising 20 month EMA (exponential moving average).

We may be seeing a type of repeat situation where buyers continue to play aggressively in the stock, taking price higher through the “Open Air Pocket” mentioned above.

Nevertheless, the 20 month EMA rests near the $345 per share level.

Continue monitoring this stock with the simple “oversold bounce” potential continuing.

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Corey Rosenbloom, CMT
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