We last mentioned Netflix (NFLX) in a Real Money story on May 13. We looked at a number of market leaders -- Facebook (FB) , Amazon (AMZN) , Netflix and others -- and noted that Netflix had already turned down. With the big downside price gap on the chart today, a fresh look is warranted. (Facebook is part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
Price gaps (or price voids) are a sudden adjustment of the supply/demand equation for securities. The supply of a security usually does not change overnight, but the demand can change quickly as investors readjust to the latest corporate news. In the case of Netflix, today the news was perceived as bearish and the free marketplace found that NFLX could open and trade at a price sharply lower than the close on Monday.
In this daily chart of NFLX, above, we can see that price gap. Prices opened near the lows of May and June. Notice how the slope of the 200-day moving average line has been down since early May. The daily On-Balance-Volume (OBV) line has not displayed a sustained upward trend since its low in February. A rising OBV line would have suggested that buyers had been attracted to NFLX.
In this weekly chart of NFLX, above, we can see prices are below the 40-week moving average line and that its slope is pointed down. Also, rallies have failed at the underside of this moving average. The weekly OBV line is flat and not signaling aggressive buying nor selling. The Moving Average Convergence Divergence (MACD) oscillator is below zero and bearish.
What's next? NFLX is testing the May and June lows around $85. If NFLX breaks these lows, the next possible support level is around $80, which held in February. These levels do not represent significant support zones as prices were not in these areas for long (the longer prices hold a level, the more important it becomes because more people could have bought it there). If the May, June and February lows give way, the next anticipated support zone is down at $70. We'll tune in later.