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Folks who don’t follow the markets closely could be forgiven for thinking it’s been an uneventful year so far…

As we approach 2025’s halfway point, the S&P 500 is up around 2.4% year-to-date (YTD). The Nasdaq is faring slightly better at 3.8%.

What’s more, volatility as measured by the CBOE Volatility Index (VIX) is flat on the year. It’s now around 17, where it finished in 2024.

Yet it’s been anything but smooth sailing. Not only did stocks crash from their February highs… but we’ve also witnessed one of the most remarkable recoveries I’ve seen in my over 40-year career.

Of course, most folks focused on the Magnificent Seven in all this turbulence. But one stock that’s gotten less attention has merrily continued a rally that began back in May 2022.

Now streaming juggernaut Netflix (NFLX) is in danger of overheating. So let’s check out what to watch on the chart…

A Long-Term Uptrend

In the chart below, the 50-day moving average (MA, blue line) shows NFLX’s underlying uptrend.

NFLX got caught up in the heavy selling in April. But it rapidly resumed its rally, hitting a recent all-time intraday high of $1,262.81. That move represented a 53.8% gain off its April 7 low. And it’s a sevenfold increase (676.2%) since the May 2022 low.

Check out the chart…

Netflix (NFLX)

Chart

Source: e-Signal

You can gauge the magnitude of the rally by the steep rate at which the 10-day MA (red line) crossed and accelerated above the 50-day MA. Since then, both MAs have bullishly tracked higher.

Likewise, the start of that rally coincided with the Relative Strength Index (RSI), a momentum indicator, forming a “V” and rallying from near oversold territory (green circle).

Each time that pattern has repeated, NFLX rallied – including August last year and January and March this year.

But a different pattern is forming now…

NFLX’s rally corresponded with the RSI pushing up to overbought territory (upper gray dashed line). Since then, it has made a series of lower highs (lower orange line).

Meanwhile, NFLX has continued to rally, making a succession of higher highs (upper orange line).

So what can we expect from here?

Tune in to Trading With Larry Live

chart

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Watch Out for a Reversal

A diverging pattern like this (the orange lines) often precedes a reversal. Declining buying momentum will eventually pull the stock down, too.

However, we need to see the RSI make a decisive move lower before considering a short trade.

That happened at “A” and “B.” After tracking in overbought territory, a falling RSI coincided with NFLX slipping lower.

Take another look:

Netflix (NFLX)

Chart

Source: e-Signal

Plus, keep a close watch on our two MAs. If the 10-day MA (red line) breaks lower toward the 50-day MA, that would confirm an emerging down move.

To be clear, we aren’t necessarily bearish on the longer-term prospects of NFLX.

We’re simply looking for a stock that has run too far and too fast. And we aim to profit when it reverses the other way.

So NFLX deserves a spot on our watchlist.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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