NFLX Primary Count

NFLX Daily Count (1) 11-03-2016

Netflix stock ($NFLX) has been one of the most popular names in the trading community for the year 2015 due to its amazing performance. It topped in the first week of December 2015 at $133.22 by completing a series of 5 waves to end the 3rd cycle (blue III in the chart). It stayed on a downward bearish channel for 42 trading days (2 months) until it bounced from the temporarily low at $79.95 on the first week of January 2016.

In this chart, we have counted the 4th big cycle (blue IV) of NFLX that will take from 6 to 12 months to complete. There are two versions on counting this price structure that NFLX has formed until today.

In this first count, we expect a wave A with 5 micro waves (red) to follow through with the channel in the chart. Up to now, there are only 4 waves completed and the 4th wave has exactly stopped at 38% of wave 3. Unless the channel is broken on the upside, meaning that NFLX goes up and makes a higher high than $102.00, we expect the price to decline and complete the 5th red wave towards $70 area.

Wave 3 has extended nearly 162% of wave 1 and this is in accordance with Fibonacci rules of Elliot for a wave 3 (or an extended wave C – second count later)Wave 4 must not violate the end of wave 1 ($105) zone for this count to be valid. Thus, we have two unbroken rules that make us follow this plan and not consider the second version.

NFLX Secondary Count

In this second chart, we will discuss a secondary wave count for NFLX that the end result will remain the same: a decline towards new lows to complete cycle IV.

NFLX Daily Count (2) 11-03-2016

In this case, we consider wave A to have completed with 3 micro waves (a-b-c) with an extended c-wave of 162% of wave a. In order for wave B to complete, NFLX needs to structure its chart with 3 visible moves towards 50% -62% retracement levels from wave A. Until now, there is a clear A-B completed and a wave C that has stopped at 100% extension A-B. If wave C continues its 5 micro waves up, it will top at $109-$110 that corresponds with the 61% retracement level.

Remember that NFLX needs to take out the previous high at $102.00 in order for us to consider this secondary wave count.

NFLX Ih Chart Analysis

In this chart, we show the 1h possible price behavior and the above 2 versions.

NFLX 1H Count 11-03-2016

It is clear how the price has formed a bullish channel. We have a clear wave (a) with 3 micro waves and a (b) wave with clear 3 micro waves. What we need to see for this pattern to complete is a (c) wave with 5 micro waves but it is hard to count this section due to the complexity of such corrective waves. We see that the red wave (c) has topped at the 100% extension of red wave (a) and the price declined in a 5 micro waves down, a fact that makes it very possible this is a 4 (in the first chart above). In addition, we can see a Head-and-Shoulder being formed and what is left is the break below the support of the necklines. As highlighted in the box, next support areas will be the 50% and 62% retracement levels of the entire move from the low.

If NFLX makes a higher high than $102.00 we have the second scenario and a possible top in the upper bound of the channel at $108-$110 area.

NFLX Possible Short Setup

Since our main count is the first one, we believe that NFLX should start to fall towards $90 level first and this short setup has a great Risk-Reward Ratio.

NFLX Short Setup 11-03-2016

A short trade in $98-$98.50 would be ideal with a stop slightly above the left-right shoulder resistance line at $100.00. We have 3 targets in case the price breaks down: 1) $96 2) $93.80 3) $91.30.

In case target 1 is hit, trail stops to the previous support zone, the neckline. Continue the same logic with target 2 and 3.

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