- With a small pullback in the near term, we likely will end up with much higher price levels later this year.
- The fundamental picture remains somewhat cloudy but technicals can help shine some light through the murkiness.
- What is the bigger picture scenario for Netflix?
by Levi at StockWaves, produced with Avi Gilburt
Wait. What? A commercial? Do you remember when we used to watch TV with commercials anxiously awaiting what was to come next? Now we can just binge uninterrupted until sleep envelops us and we drift off into dreamland. But Netflix (NASDAQ:NFLX) the stock may take a perfunctory pause here from its recent rally to refresh and renew itself for the next rally phase.
Let’s Recap Where We Have Been First
From a fundamentals standpoint, things are still a bit misty. Lyn Alden, one of our lead analysts, recently remarked on NFLX. Here are some gems from her commentary:
“Netflix is a stock that I have been bearish on for a while, and have compared it unfavorably to Disney (DIS) for years. NFLX was operating in an increasingly competitive industry with a high valuation, and has now crashed.
Now that it has crashed, I’m no longer bearish on it, but I have no firm bullish view either. The valuation has reduced substantially, but growth has stalled, and so it risks becoming a value trap. Investors should do a lot of careful analysis before going long or short NFLX; there’s a higher than normal variance for this one.”
At that moment in time NFLX was trading at about $255 / share. What did the technicals point to? Perhaps you saw the article posted at that time: “Netflix: The Evolution Of Analysis” (see here). I would encourage you to take a few minutes and review that piece as it explains in depth how we viewed NFLX back in the Fall of 2021 and the price that was projected as it was striking all-time highs.
Here’s the easy button version: Caution flags went up in November of 2021 as price was reaching the $700 level, the lower portion of our target region. An initial pullback in a Primary Wave 4 was projected to $275. As the structure evolved and unfolded further, that target was adjusted lower, as you can see on the charts attached in the article referenced above.
In the bigger picture, should NFLX be able to achieve a complete 5 waves up from the low struck at $164 in June of last year, that would signal a major trend shift and possibly even point to new all-time highs in the future. What would we need to see for that to set up?
Note here that we may be completing or near completing a third wave up from those June 2022 lows. That suggests that a fourth wave corrective move should unfold over the next few weeks. From there, should a fifth wave higher be reached, that would have us watching for a three wave corrective structure retracing somewhere between 38% and 62% of the entire move.
Support for this anticipated fourth wave in the near term is the $295 – $305 range. Finding support there should drive the fifth wave to as high as $425 – $450 before a larger pullback.
Could NFLX be in a more bullish pattern in the near term? Sure. Instead of pulling back to the support mentioned, it could surge higher in direct fashion. Should it take out the $385 level with follow-thru, then the $425 – $450 area could be struck straight away.
As well, support may not hold and this could decline to the $250 level before finding its footing.
However, it’s our primary scenario that this will be a fourth wave corrective pattern that could lead to another high in price thereafter. In fact, should that happen and this does indeed form five waves up from the June lows, then we will carefully track the corrective pattern to identify a high-probability setup for a potential larger third wave higher.
Nomenclature And Name Calling
Well, that’s actually double-speak, for they are the same. Nomenclature simply signifies the body or system of names in a particular field. If we were to look for a comparison, perhaps one might point out the metric system. In very simple terms, there are nanometers, and even picometers if one wishes to go that tiny. These measurements make up the larger structure of a meter. They must fit in the framework.
In quite like manner with Elliott Wave analysis, the subwaves, all the way down to pico waves must fit in the larger arrangement. Avi Gilburt has explained it thusly:
“Back in the 1930s, an accountant named Ralph Nelson Elliott identified behavioral patterns within the stock market which represented the larger collective behavioral patterns of society en masse. And, in 1940, Elliott publicly tied the movements of human behavior to the natural law represented through Fibonacci mathematics.
Elliott understood that financial markets provide us with a representation of the overall mood or psychology of the masses. And he also understood that markets are fractal in nature. That means they are variably self-similar at different degrees of trend.
Most specifically, Elliott theorized that public sentiment and mass psychology move in 5 waves within a primary trend, and 3 waves within a counter-trend. Once a 5 wave move in public sentiment has completed, then it is time for the subconscious sentiment of the public to shift in the opposite direction, which is simply the natural cycle within the human psyche, and not the operative effect of some form of ‘news’.
This mass form of progression and regression seems to be hard wired deep within the psyche of all living creatures, and that is what we have come to know today as the ‘herding principle’, which gives this theory its ultimate power.
And, over the last 30 years, many social experiments have been conducted throughout the world which have provided scientific support to Elliott’s theories presented almost a century ago.”
How Can This Help Me?
Once again, I would refer you to the article published in November that showed the entire evolution of analysis for NFLX. Now, this was not just a one-trick pony by our StockWaves team. It was in this November 2021 time frame that warning signs were going up from Zac Mannes and Garrett Patten. Smoke signals, flares, red flags – call them what you may, our analysts were sounding loud and clear that an important top was nigh for Tech Land.
In fact, it was the nomenclature that guided them to project a deep pullback in many major tech names, including NFLX, of course. It was the understanding of the context of the moment that showed them just how low many issues would sink.
It’s the nomenclature that tells us at what degree we found ourselves. The larger the degree, the larger the expected move, both in price and the time that it takes to complete. And remember that the markets are fractal in nature. This means that there’s self-similarity at all of these degree of expression of sentiment that we read as price on the charts.
It’s probable that NFLX saw an important low in June of 2022. That low is likely the Primary Wave 4. Primary Wave 5 would follow. How will we know just how high that fifth wave may take us? Let’s see the entire five wave structure fill out. Right now we find ourselves likely topping in a third wave with a fourth to come in the near term. Once a fifth wave fills out that will likely be a fifth of an Intermediate Wave .
This means that the pullback in Intermediate  will set up a high probability long swing trade with define risk vs reward parameters. We will be updating the readership as this develops further. But, for now, a brief commercial break with more to come soon.
A Reminder For Our Readers
I would like to take this opportunity to remind you that we provide our perspective by ranking probabilistic market movements based upon the structure of the market price action. And if we maintain a certain primary perspective as to how the market will move next, and the market breaks that pattern, it clearly tells us that we were wrong in our initial assessment. But here’s the most important part of the analysis: We also provide you with an alternative perspective at the same time we provide you with our primary expectation, and let you know when to adopt that alternative perspective before it happens.
There are many ways to analyze and track stocks and the market they form. Some are more consistent than others. For us, this method has proved the most reliable and keeps us on the right side of the trade much more often than not. Nothing is perfect in this world, but for those looking to open their eyes to a new universe of trading and investing, why not consider studying this further? It may just be one of the most illuminating projects you undertake.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in NFLX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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