Managing risk in Netflix (NFLX)

Netflix (NFLX): Bullish Setup Broken

NFLX has lost its bullish setup after last week’s earnings. The stock had been forming a bullish wedge above its rising 40-week moving average (WMA), but it closed below this key trend gauge (near 1126.64) and risks another close beneath it this week. This transition — from price above to price below a rising WMA — shifts NFLX from "bullish" to "bullish at risk", which suggests reducing long exposure.

Price and WMA Framework

• Bullish: Rising WMA, price above (NFLX prior to earnings announcement)

• Bullish at risk: Rising WMA, price below (NFLX now)

• Bearish: Falling WMA, price below

• Bearish at risk: Falling WMA, price above

Tactical View: When in doubt, get out

Even if NFLX rebounds above its 40-WMA, moving back to bullish (price above rising WMA), the post-earnings gap from 1157–1232 is an overhang. Downside risk extends to 1081 (50% retracement of the April–July rally) and possibly 1020 (61.8% retracement). NFLX is also weakening versus the S&P 500, confirming a tactical loss of leadership.

Chart 1: Netflix (NFLX) (top) and relative to the S&P 500 (bottom): Weekly

Chart 2: Netflix (NFLX): Daily