1/9/12

The broader market decided to stay still today, much as it did Friday.  It's probably tracing out a triangle of some sort.  About the only thing that seems clear to me about the past couple of days with respect to the SPX is that the move from 1283.06 (Thursday 1:40 p.m.) to 1274.55 (today 11:15 a.m.) looks a lot like a flat.  To which I have to say:  Pick a direction, market, and go in it.

So instead I'm going to look at Netflix, which has been explosive the past couple of days, rising nearly 14% today alone.

The weekly chart for the past year does not look particularly good.  From this it looks as if the recent surge, powerful though it may have been, is simply a backtest of the 200-week SMA which it gapped through in October.

Speaking of gaps, NFLX's history is full of them.  Let's take a look at the daily chart, highlighting the gaps.  (Blue = gap up, red = gap down.)

Currently it looks as though the stock is trying to fill the massive (largest on this log scale) gap it left when it plunged overnight from 115 to under 80 a share.  NFLX is already daily overbought (RSI(13) at 75), but may have a little more room to run.  An operative question is whether this dramatic upturn is the C wave of a correction, or 3 of A (or 3 of 1 of the new NFLX bull).

IF the broader market is about to have a major crash, I would find it hard pressed for NFLX to continue double-digit daily rises.  On the other hand, if such a crash is still a few days or weeks away (market making a topping process ultimately to reach the 1310-1330 range), NFLX may power through to at least fill the gap at 115.  I find it difficult to believe it would fill the higher gap at ~200 soon, though, as the 200-day SMA is at 185.60 (about the bottom of that gap) and declining.  If the market is still ascending, NFLX may, however, try to challenge this SMA in a wave 2/B.

On the other hand, if a crash is due, now (or soon) would be a good time for NFLX to reverse.  Of course, it is always possible that the stock may hold up through Minor 3 (i.e. not go below 77 causing 4/1 overlap), rise in a 5 of A during the broader market's Minor 4 filling the gap at 115, fall in a B-wave during the broader market's Minor 5, and rise to meet its 200-day SMA somewhere in the 150s (?) during Intermediate (2) before filling the gap in the lower 50s during Intermediate (3).

NFLX is severely overbought hourly, but the structure suggests that even if this is NFLX's C wave, there still needs to be a 4 and 5 of C.  A pullback of some kind is likely; it's just a matter of how strong and long-lasting this pullback will be.  I may consider buying shares of NFLX in the near future, possibly within the next 72 hours.