• Netflix has been one of the strongest stocks in the market, with a strong Investment Thesis, but announcements from Disney and Apple, require a disciplined strategy.

Money Flow Index (80 is Overbought, 20 is Oversold): 72 is approaching Overbought. Money Flow has been rising hope share price has been rising. This is positive.

MACD Momentum: Has been in a slow downtrend which is a negative divergence from the rising price and rising Money Flow Index.

On Balance Volume (OBV indicates share accumulation/distribution): OBV has been flat reflecting an equal amount of buying a selling. If Institutions were accumulating shares, OBV would be rising. This appears to be institutions selling shares, and smaller investors  buying at higher prices.

Volume: has been decreasing. This is a negative divergence from the rising price. Trading Volume is considered a precursor to price movement. Within the supply/demand equation, if demand is decreasing the stock price will also decrease.

What does that mean at MONEYWISEHQ

There are actually two negative catalysts on the horizon and the ‘uncertainty’ of their impact on Netflix will affect the stock price.

1. March 27 Apple event expected to announce an online streaming service free for Apple device owners.
2. April 11 Disney Analyst Day where Disney will provide additional information of the launch of the Disney+ streaming service.

The divergence in the Technical indicators, rising stock price and Money Flow opposite to OBV, Trading Volume and Momentum is not a setup for a high probability trade to the upside.

Netflix is a great Company with a strong investment thesis. Ultimately the change to the secular trend in online streaming will allow a market with a number of services, however the immediate uncertainty will be a cause for investors.

Big Money Managers always look for the greatest potential profit. Stocks always recover from a bear market in three waves as institutions take profits out of the leaders and rotate into high quality stocks that have lagged the recovery.

Netflix was a First Wave mover, regaining all of it’s 40% Bear Market decline. In keeping with the market recovery theory, Stock rotation within the tech sector could see profits being taken out of Netflix and reinvested in second wave laggards such as Disney or Apple which have the potential for higher.

Downside Risk: $330 (10% Loss)

Upside Reward: $380 (4% gain)

STRATEGY

1. Maintain a trailing 1% STOP LOSS sell order as price continues to rise. In the event of a selloff. Consider re-entering the trade on a pullback to a lower risk entry point or when the two negative catalysts have passed, there is greater certainty on the affect of Apple and Disney+ streaming service, or when the Technical indicators have resolved the negative divergence between price/Money Flow and OBV/Trading Volume/Momentum.

A good investor has to be aggressive to make money, but if you’re not defensive you won’t keep your money.