Wednesday morning the continued Tuesday’s bounce off of 4,120 support, at least initially. Unfortunately, after erasing nearly all of the previous day’s decline in midday trade, the index retreated back to breakeven by the close.
This was definitely one of those half-full, half-empty kinds of days. Bulls are pointing to the stalled selloff and bears are gloating over the weak close.
In situations like this, the tie-breaker always goes with the trend. This is still very much a bull market and that means when everything is equal, the next move typically resolves to the upside.
Tuesday’s dip and bounce gave us a clear line in the sand. Remain above 4,120 support and the bounce is alive and well. Retreat back to support so soon after bouncing off of it and lower prices are ahead. Plan your next trade accordingly.
As expected, Netflix (NASDAQ:) violated $500 support, giving us a nice short entry.
Stocks bounce from oversold levels quickly. Unfortunately, NFLX has been hovering near $500 for a few weeks now. That tells us this pullback following disappointing subscriber growth hasn’t reached oversold levels yet. Something that holds next to support for too long will inevitably violate that support. And that’s exactly what NFLX did yesterday.
NFLX is now a short with a stop just above $500.
That said, trading against the trend is one of the most difficult ways to make money because it requires impeccable timing. This is a good short entry, but we need to remain nimble.
Keep a nearby stop and be prepared to take profits quickly. NFLX is still a great company and this dip will bounce hard and fast once it reaches capitulation. Don’t get caught on the wrong side of that bounce.
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