Shares of Netflix (NFLX) are still in the dumps after the Walt Disney Co. (DIS) said earlier this week it would pull its content off the streaming service, which worried investors about the long-term effect on earnings. The stock fell two percent Thursday after another two percent drop Wednesday, which breached support levels and put shares at risk of another move lower.
As it stands now, traders can use $175 as a pivot point for Netflix. That level is support from the middle of July, when the stock gapped higher on stronger-than-expected earnings. If shares cannot reclaim this level, Netflix is at risk of filling the gap all the way down to $165. There is support at Wednesday’s low of $170 and the after-hours low of approximately $168 Tuesday afternoon.
There are two other bearish indicators on Netflix’s chart. First is a negative Moving Average Convergence Divergence (MACD), which tells us that the momentum of the stock is lower. The second is a more recent signal that indicates momentum is to the downside: The directional movement index (DMI) experienced a negative reversal Wednesday when the "-DI" (negative directional movement) line crossed above the "+DI" (positive directional movement) line.
Chart source: TradingView
While the technical signs point to continued weakness, if shares can close above Wednesday’s high of $175.96, that would be a bullish sign that Wednesday's selloff was an overreaction. The other factor that will impact Netflix’s direction is whether the Nasdaq can regain momentum. Over the last few weeks, the composite has stalled at highs, which is justifiable, since it has had a tremendous run. But given the weak technical state that Netflix is in, a Nasdaq rally could give shares the necessary support to lift them back above the $175 level.
The Bottom Line
After Disney’s decision to remove its content from Netflix’s platform, shares fell on worries about what that might do to earnings in the long run—it's a sign of more competition in the industry which could cut into Netflix’s business. The stock fell below key technical support at $175 and is now at an important pivot point going forward.
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