A little over a year ago, streaming giant Netflix (NFLX) could hardly stay out of the news… but for all the wrong reasons.

Disappointing results set off a slew of analyst downgrades. As a result, investors abandoned the stock in droves.

By the time NFLX started to bottom out in May 2022, it had plummeted near 80% from its all-time high just six months prior.

Yet NFLX steadily and quietly climbed higher throughout 2022… a rally that carried over into the start of 2023 and that many missed.

But recently, NFLX has retraced. So today, we’ll check out what’s coming next…

Gapping Down

On the chart below, you can see NFLX’s huge gap down after releasing its disappointing Q1 2022 results.

At the peak of that fall, NFLX shares were down near 40% in a single trading session…

Netflix (NFLX)


Source: eSignal

This strong sell-off put our momentum indicator, the Relative Strength Index (RSI), well into oversold territory (below the lower grey dashed line).

Yet buying momentum started to return (red line), and the RSI began to track higher. So NFLX was able to build a base.

Then, NFLX began to rally in July. The RSI broke through resistance (green line) and gained traction in the upper half of its range.

From there, NFLX’s rally to its February 3 peak at ‘A’ brought the stock up 140% from its lows. This movement coincided with two key bullish signals…

  1. The RSI tracked predominantly in its upper range.

  2. The 10-day moving average (MA – red line) broke above (and mainly stayed above) the longer-term 50-day MA (blue line). Both also trended higher.

But as we came into 2023, another RSI pattern started to unfold… As NFLX made higher highs (upper orange line), the RSI made lower highs (lower orange line).

Take another look at the chart…

Netflix (NFLX)


Source: eSignal

When these two diverge, a change of direction is often on the cards.

So with buying momentum declining, NFLX started to pull back from its peak at ‘A.’ That down leg gathered momentum as the RSI fell back into its lower range.

And the 10-day MA added to the bearish sentiment by crossing back below the 50-day MA.

However, NFLX’s pullback bottomed out at ‘B’ with the RSI making a ‘V’ in oversold territory. Then, the RSI crept higher, dragging NFLX with it.

But now, momentum is stalling. So what can we expect from here?

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Regaining Momentum?

As the chart shows, NFLX has recently rallied up its longer-term 50-day MA.

For NFLX’s rally to regain momentum, it must break through the 50-day MA and bring the 10-day MA up with it.

But that all depends on the RSI (red circle)…

The RSI is now tracking right around support/resistance (green line). For NFLX to rally from here, the RSI must regain its footing in its upper range (and stay there), like it did from July 2022 to February 2023.

However, if the RSI falls back into its lower range, then NFLX’s current rally will likely roll over.

And a prolonged stay in the RSI’s lower band could see NFLX take out its recent low at ‘B.’


Larry Benedict
Editor, Trading With Larry Benedict

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