(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NFLX.)

Netflix Inc. (NFLX) shares, which are up by nearly 70 percent in 2018, have seemed nearly unstoppable amid the upheaval in the stock market. But the outlook now is much more bearish. Shares of the streaming entertainment company may fall by 11 percent to $289 from yesterday's close, according to a technical analysis.

That sober outlook runs counter to the recent positive news on Netflix. Better-than-expected subscriber growth has resulted in shares soaring and multiple upgrades from the analyst community over the past few weeks. The company had reported in mid-January fourth-quarter net new subscriber of 8.33 million, 2.0 million subscribers more than its third quarter guidance.

It's no surprise that 57% of analysts now rate Netflix a buy or an outperform. And even supposedly cautious firms such as Stifel actually boosted price target today by 15%, a whopping $42 dollars a share, to $325 from $283 previously. Stifel did that even as it put a "hold" rating on ths stock, noting it might have run ahead of fundamentals. (See also: Understanding Analyst Ratings.)

A Decline To $287

But technical indicators for Netflix indicate its stock will plunge - not rise - to roughly $287 over the coming days and weeks. The hourly chart shows how the technical support level formed as a result of the highs seen on January 29,  following strong fourth-quarter results. 

The $287 also served as technical resistance as the stock increased from February through the present. And it also served as technical support on March 2, before the stock took off to its current price around $325.



The daily chart of Netflix shows just how much the stock has run up in recent weeks. In fact, since February 9, during the broader market sell-off, the stock is up by over 30 percent. But more importantly, the relative strength index (RSI) has reached a reading of 80. A reading above 70 is considered overbought. The current RSI reading is lower than the reading on January 29, when it hit 90. Both of these RSI readings are extraordinarily high and demonstrate how overextended shares of Netflix have gotten in recent weeks. 



Diverging Trends

The other part of the RSI reading shows that the current reading is trending lower, despite Netflix stock clearing a new all-time high. That could be viewed a bearish divergence, which further indicates how overextended the stock has gotten. (See also: Overbought Or Oversold? Use The Relative Strength Index To Find Out.)

There is no doubt that Netflix has a bright future, with the potential to capture subscribers anywhere in the world where there's a mobile phone and a data connection.  But that doesn't mean the stock can't become overextended. As the stock's price reaches astronomical peaks, expectations may be growing to unrealistic levels.  A pullback would not only be welcomed, but it would be healthy to dampen those expectations. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance. 

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.