Stock of the day: Netflix
17 August 2023
While the broader market continues its downward trajectory, Netflix, one of the world's leading entertainment services, is mirroring this trend. In this analysis, we will explore how Netflix stands just a step away from a significant sell signal, as key technical formations on its chart present a fascinating and potentially worrisome picture for investors.
First, let’s set the scene with a look at the larger trend. The chart showcases a striking broadening wedge pattern, indicated by two diverging black lines. Inside this broadening wedge, a classic reversal pattern has taken shape: a head and shoulders formation, outlined here in yellow. This pattern is characterized by a peak (the head), flanked by two lower peaks (the shoulders), suggesting a potential bearish reversal of the preceding uptrend. It's one of the most reliable trend reversal patterns.
The key level to watch is the neckline of this head and shoulders pattern, depicted in purple on the chart. A break below this neckline would, in technical analysis terms, activate the pattern and typically generate a robust sell signal.
If this bearish break does occur — and current market conditions suggest that it’s a substantial possibility — our analysis points to a potential target at the $380 mark. This level, highlighted in blue, represents a crucial horizontal support. Additionally, this target coincides with the lower line of the broadening wedge, adding confluence to the potential downward move.
What follows this critical juncture remains to be seen. If the price does indeed break below the lower black line of the broadening wedge, that would signal a compelling opportunity to go short, suggesting further significant downside. For stockholders, this scenario, unfortunately, paints a grim picture, especially if the bearish sentiment enveloping the wider market persists.