Putting Daily Gappers Netflix NFLX and Microsoft MSFT into Weekly Context

Apr 23, 2013: 11:04 AM CST

Traders may have been surprised by the strength of the recent upside gaps in Microsoft (MSFT) and especially Netflix (NFLX) which shattered daily resistance levels into “Open Air” territory.

Let’s put these strong upside gaps into the context of the Weekly Chart and broader trends and gather insights from the higher timeframe structure and levels.

First, the “Big Gapper” Netflix (NFLX):

If you’re not accustomed to viewing Netflix (NFLX) stock, keep in mind that this morning’s big $40.60 overnight earnings gap is almost identical to the big opening gap on January 24, 2013.  In other words, we can’t use terms like “unprecedented” to describe today’s upside activity.

If history is a guide, we saw an initial pause/consolidation (perfectly logical) before price continued higher with a large non-gap one-day surge of $23.00.

At this moment, the intraday session so far is forming a consolidation or pause of the overnight gap movement and we’ll be focused on the final range at the close of today’s session for guidance (bull/bear pivot levels) for Wednesday’s session and beyond.

Given that price broke the recent ‘rectangle’ range from $180 to $200, there are no further reference levels to monitor on the Daily Chart as price ejected into “Open Air.”

Let’s put today’s opening gap in the context of the larger weekly chart and intermediate trend:

I drew a simple Fibonacci Retracement grid from the $304 high (2011) to the $52 low (2012) to arrive at the key focal point into $208 per share.

The $208 level is the important focal point for short-term traders to use as a key reference area, as it is also a “Polarity Price” meaning price has inflected from $208 previously as both short-term support and resistance.

With the break above the 61.8% Fibonacci Level, this suggests that a sustained uptrend is in place and that the intermediate trend has joined the short-term trend in a bullish orientation.

Netflix (NFLX) thus remains “bullishly biased” while it remains above the $208 level.

While not as dramatic, Microsoft (MSFT) shares enjoyed their own upside gaps recently:

Short-term traders in Microsoft have likely been frustrated by the back-and-forth gap activity between the $28.75 and $30.50 region, having endured two days of upside breakout only to be erased completely with a single session after an opening gap (April 11).

After further stagnation/consolidation into the $29 area and rising 20d EMA, we see a fresh series of upside gaps that propelled price to the current $31.00 per share level.

While Netflix burst into Open Air, the picture is not the same according to Microsoft’s Weekly Chart:

This week’s upside gap activity thrust Microsoft shares into the known resistance target near $31 which was a reversal point for shares during September 2012.

Traders should concentrate their attention on the interplay into the $31.00/$31.50 per share pivot.

A continued breakthrough here – and sustained close above $31 – suggests that shares will enter the “Open Air” pocket (and pathway) back to $32 but until that happens, do focus on the short-term and even intraday activity relative to the $31.00 per share price level.

To be precise, the spike-swing high on November 6th, 2012 (also a gap and reversal candle) is $31.61.

While it’s very easy to get excited by intraday gaps, it helps to step the perspective up to the higher timeframe to note any targets that have been hit or key levels that now become in play (which may have been inconceivable the night before the gap).

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Comments Off on Putting Daily Gappers Netflix NFLX and Microsoft MSFT into Weekly Context

Comments are closed.