Relative Weakness in NFLX Persists

 

The relative weakness in NFLX continues to stand out, and today was another good example of why I’ve stayed cautious with this stock. While the SPY pushed higher and made a new high on the day, NFLX closed lower. That type of divergence is exactly what I pay attention to. Above is the daily chart of NFLX, and in the lower pane I have the SPY for comparison. When the broader market is moving up and an individual stock can’t keep pace, that’s often a warning sign.

I’ve been talking about this relative weakness since early December. Back then, the market was still in a strong uptrend, but NFLX was already starting to lag. On December 4th, I laid out why I was bearish and why the action in NFLX was something investors shouldn’t ignore. Since that time, we’ve seen the stock sell off, confirming that early warning. Relative weakness doesn’t always play out immediately, but when it persists, it usually matters.

Now we’re back at another interesting spot on the chart, and in my view, another potential setup for a short. Today NFLX printed an inside day, meaning the entire trading range stayed within yesterday’s range. On its own, an inside day can mean consolidation, but context is everything. The key is that this happened while the S&P 500 made a higher high today. To me, that’s another clear sign that NFLX is underperforming and that sellers are still in control.

The level I’ll be watching very closely is yesterday’s low at 81.93. That low also happens to be the earnings day low, which makes it even more important. If that level gives way, I think we could see some further downside unfold fairly quickly. As long as NFLX continues to lag the market and fails to show any real relative strength, I remain skeptical of the upside.

For anyone who wants more background on why I turned bearish in the first place, I’d recommend going back and reading my original post from December 4th, Relative Weakness in NFLX You Can’t Ignore.