Netflix, Inc. shares sold off more than 5.5% in Wednesday’s tech-driven rout, closing under the 50-day exponential moving average (EMA) for the first time since Aug. 28. More importantly, the decline ended a seven-week test at the psychological $200 level, with bears handily rejecting a concerted attempt to build new support. The sell-off posted nearly three times the stock’s average daily volume, adding intensity to the turnaround.
This failure may signal the start of an intermediate correction that reaches the 200-day EMA, currently lifting into $170. That price level also marks support at a rising channel going back to April 2016. However, a strong bounce is likely before additional downside unfolds, with new resistance between $192 and $195 likely to trigger a reversal, making it a natural entry point for short sellers.
There is little or no risk that the longer-term uptrend will come under pressure despite the correction, because that would require downside through the January 2017 breakout above $130. However, the stock has not touched the 200-day EMA since October 2016, raising the odds that mean reversion will soon take control and shake out the large population of complacent bulls who aren’t prepared for a deep or sudden slide. (See also: Netflix Stock May Rebound 17%, Options Trades Indicate.)
Netflix stock fell more than 5.5% Wednesday, ending a seven-week test at $200 and raising odds for more downside into support near $170. …read more
Read more here: Netflix Stock’s Reversal Could Signal Greater Downside