Netflix, Inc. (NFLX) stock has dropped to the most extreme oversold technical reading since 2012 and could bounce strongly, relieving shareholder anxiety while squeezing the large supply of short sellers. However, this is a market timing call and not an all-clear signal because broad price structure predicts that the streaming giant will be range bound into 2020 and beyond, which makes perfect sense given the plethora of competitive services coming online in coming months.

Services from Apple Inc. (AAPL) and The Walt Disney Company (DIS) will present the most difficult challenges at the same time that customers all across the planet realize their monthly subscription bills have reached or are exceeding what they paid to cable and satellite outlets before cutting the cord and moving to the internet. In turn, this could generate greater selectivity, persuading consumers to drop services that don't provide enough bang for the buck.

It's no accident that Apple and Disney are launching their streaming services on the same date in November, encouraging customers to subscribe to the duo in tandem. Those purchases are likely to trigger a surge of Netflix cancellations leading into the Nov. 12 releases, so market timers and position traders jumping into the stock should probably exit long positions ahead of the date, which may serve as a catalyst for short sellers.

NFLX Monthly Chart (2009 – 2019)

Monthly chart showing the share price performance of Netflix, Inc. (NFLX)

The stock cleared five-year resistance at a split-adjusted $5.68 in 2009, entering a strong uptrend that topped out at $43.54 in 2011. It sold off and tested breakout support in 2012, attracting committed buying interest ahead of a strong recovery wave that completed a round trip into the prior high in 2013. Price action entered a rising channel after a 2014 breakout, stair-stepping up to $129.29 in the summer of 2015.

Netflix mounted resistance after the 2016 election and took off, posting impressive gains as a proud member of the FAANG quintet. The advance flamed out after the stock posted an all-time high at $423.21 in June 2018, giving way to a complex correction that found support in December after filling the January 2018 gap between $227 and $247. The bounce into April 2019 reversed at the .786 Fibonacci sell-off retracement, yielding a steep decline that recently posted a nine-month low.

The monthly stochastics oscillator has just crossed into the oversold zone for the first time since 2012, signaling a potential selling climax that may presage a strong bounce into resistance above $330. The sell-off reached the .618 Fibonacci retracement level of the 2019 uptick at the same time, adding reliability to the prediction, which has not yet translated into more productive price action.

NFLX Short-Term Chart (2016 – 2019)

Short-term chart showing the share price performance of Netflix, Inc. (NFLX)

A Fibonacci grid stretched across the 2016 into 2018 downtrend places the December low at the .50 retracement and the September low at the .382 retracement. This symmetry suggests that the stock will gain ground from here, possibly filling the July gap and reaching the declining highs trendline. In addition, the recent low stalled at a rising trendline going back to the presidential election. Taken together, it looks like price action has eased into a broad symmetrical triangle that could persist well into 2020.

The on-balance volume (OBV) accumulation-distribution indicator hit a multi-year high in 2015 and entered a distribution phase that ended in early 2016. The subsequent accumulation phase mounted the prior high (red line) in June 2018 but failed the breakout a month later, yielding a steady decline into December. Buying pressure in 2019 reversed at new resistance in July, dropping OBV just above the prior low. The rounded pattern around this zone suggests modest buying pressure that is also consistent with a tradeable bounce.

The Bottom Line

Netflix stock looks set to bounce into the fourth quarter, offering opportune profits for well-timed long long positions, but competitive pressures may keep a lid on the stock in the coming years.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.