Mapping the Market: More losses in store for Netflix shares?
By Christopher Romano
Oct 30 (Reuters) - Shares in Netflix have lost about a third of their value this year, hurt most recently by disappointing guidance from the company. Worse yet, there may be more stock-market pain in store for the streaming pioneer, technical analysis indicates.
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Click here for a detailed technical analysis chart.
When technical analysts evaluate the prospects of a further slide in a falling stock, they look for a chart level that will act as support, or a floor for the price.
A common form of support is past highs and lows. A group of these peaks and troughs around similar levels is known as structural support and can become especially powerful.
Another source of support is from Fibonacci retracements. These are mathematical calculations that mark the percentages a stock price often revisits after a big move. When different kinds of support cluster near the same level, analysts consider that level particularly significant. Traders often target support levels.
Netflix shares recently have been trading around support near $61 and $62. This area includes structural support as well as a Fibonacci retracement.
A sustained drop below there would raise expectations among market participants for a slide to the $54.50 to $55 zone and then the $48 to $50 area. Both are points where previous lows and highs occurred. Below that, an important Fibonacci level combined with structural support lies around $44, according to LSEG data.
When analysts expect a stock to fall, they often use tools that measure momentum and volatility to confirm their view.
One tool is Moving Average Convergence Divergence, or MACD. It compares two moving averages of different lengths to gauge selling pressure. A moving average smooths out price swings by averaging prices over a set period.
Another is the Relative Strength Index, or RSI. It gauges the speed of recent price changes to show whether a stock is gaining or losing strength.
A key volatility gauge is Bollinger Bands. These are two lines drawn above and below the moving average of a stock's price, and they widen when price swings grow larger.
All three measures point to more losses for Netflix shares.
Markets rarely move in a straight line, though, and it is possible that Netflix bobs up and down before settling on a direction. However, a rally above the $73 to $73.50 area would raise serious questions about a further downward move.
Netflix did not immediately respond to a request for comment submitted through the company's media portal.
What the chart shows:
Netflix shares have lost a third of their value this year
A drop below $61 and $62 could trigger a slide that ultimately targets $44
A rise above the $73-to-$73.50 range might quash the downward trend
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )