Streaming service Netflix (NFLX) was downgraded to "sell" by a prominent sell-side firm. Shares of NFLX gapped lower Friday as the broad market slumped sharply lower.
In our last review of NFLX on April 13 we recommended that "We are in the process of signing up for internet and TV service at our new home. Even with bundles and packages the numbers are steep. I wonder out loud if consumers are getting hurt in the supermarket and at the gas pump that they will be taking money out of their entertainment budget. Might be an interesting survey. In the meantime, I would continue to avoid the long side of NFLX."
Let's check the charts again in light of this current fundamental downgrade.
In this daily bar chart of NFLX, below, we used a log scale to display the price action. Prices have made a major decline from November to a low in early May. Prices are trading lower Friday and the key question is whether this move is the start of another "leg" lower or whether it will be a retest of the May low?
NFLX is trading below the declining 50-day moving average line and extended (oversold) below the 200-day line.
The On-Balance-Volume (OBV) line made a slight recovery from early May but looks like it is weakening again. The Moving Average Convergence Divergence (MACD) oscillator is narrowing and could cross to the downside from below the zero line. Another sell signal.
In this weekly Japanese candlestick chart of NFLX, below, we went back five years to get some additional perspective. Prices are back to levels not seen since 2017 and the next area traders may be eyeing is the round number of $100. The slope of the 40-week moving average is bearish.
The weekly OBV line is bearish but shows a pause recently. The MACD oscillator is bearish but is narrowing. We'll see if that continues.
In this daily Point and Figure chart of NFLX, below, we can see a downside price target in the $158 area.
In this weekly Point and Figure chart of NFLX, below, we can see an upside price target but a trade at $176.97 or lower is likely to weaken the picture.
Bottom line strategy: Continue to avoid the long side of NFLX even if the recent May low holds. The risk is for further declines with downside targets in the $158 to $100 area.
