Just over 18 months ago, Netflix (NFLX) investors were licking their wounds.

Back then, the streaming giant had lost over three-quarters of its value after a string of disappointing earnings and subscriber growth numbers. Its shares plummeted from around $700 down to just under $163.

Yet after steadily building a base, NFLX turned things around and began to rally.

Its recent high (just under $600) is well below its $700.99 all-time high. But it still represents a massive 266% rally from its 2022 lows.

Now a potential reversal pattern is developing. So let’s check where NFLX is heading from here…

A Rally Underway

The chart of NFLX below shows it was trading at around $285 just under 12 months ago.

The next leg of NFLX’s rally got underway with it hitting a short-term peak at $485. That was an impressive 70% gain in just four months.

Netflix (NFLX)


Source: eSignal

As the chart shows, that up move coincided with bullish signals…

  1. The 10-day Moving Average (MA, red line) crossed above the 50-day MA (blue line) and then accelerated higher.

  2. The Relative Strength Index (RSI) broke through resistance (green line) and tracked in the upper half of its range.

  3. The blue MACD line crossed above the orange Signal line with both tracking higher.

After hitting that July 19 short-term peak, though, a diverging pattern pulled NFLX lower (left orange lines).

That retracement lasted through October. Then NFLX’s Q3 earnings and subscriber growth numbers beat expectations and caused the stock to reverse and gap higher.

When we back in November (red arrow), however, that move was coming under pressure.

NFLX was flattening out. And the RSI was tracking in overbought territory (above the upper grey dashed line).

Yet after a brief pullback, NFLX was able to find a base and then resume its rally.

Take another look:

Netflix (NFLX)


Source: eSignal

This coincided with the RSI testing and holding support (green line) multiple times from early December to January. And the 10-day MA accelerated above the 50-day MA.

And another earnings beat in late January saw NFLX gap higher.

But with a new diverging pattern developing (right orange lines), what can we expect from here?

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An Emerging Down Move?

NFLX has been climbing (right upper orange line). But the RSI has been tracking lower (right lower orange line).

If momentum keeps falling like this, it will eventually pull NFLX lower too. The RSI falling toward support could see NFLX retrace back to the $250–260 level.

The two MAs closing in on each other (and crossing) would add further weight to any emerging down move.

Yet MACD has more immediate sensitivity, so I’ll be watching it closely right now.

After the MACD line bearishly crossed beneath the Signal line, the two lines merged. And both are tracking slightly lower.

If the MACD breaks beneath the Signal line and starts to slide down, that could see a quick pullback and provide the setup for a short trade.


Larry Benedict
Editor, Trading With Larry Benedict