Netflix, Inc. (NASDAQ:NFLX) stock is going into a reverse spiral after breaking the major technical support levels and losing momentum. The stock is expected to post a drop of another 11% from current levels to enter bearish market territory in the short run, says a report the Wall Street Journal by Tomi Kilgore.
Netflix may drop more in short run
According to analysts and technical experts, the stock after a drop of 11% would be perfect to buy. Netflix, Inc. (NASDAQ:NFLX) dropped 5.6% to a seven week low of $339.50 following a downgrade from Morgan Stanley on Tuesday. Netflix’s shares are trading below the 50-day moving average level for the first time, which is an important metric for many technical investors.
According to Mark Newton, who is the chief technical analyst at broker dealer GreyWolf Execution Partners, the stock is poised to decline further in the short run, but getting too bearish is not the right thing to do. “It’s been notoriously tough to fight this [rally],” he said.
The analyst noted that, in the short run, profit can be earned by piling up the stock once it drops, and Netflix can be bought after a little more drop in the price.
Similarly, Stanley Dash, vice president of applied technical analysis at TradeStation Securities expects the price to drop further in the short term, as momentum has declined significantly, but the long term uptrend remains intact.
“The evidence doesn’t say bear market yet,” Mr. Dash said, but “bulls have to be very cautious.”
Long term prospects bright
In 2013, Netflix, Inc. (NASDAQ:NFLX) was the best performer among the S&P 500 components, but now it has crossed the downward barriers to enter into the official correction territory closing 11% below the Dec. 23 all-time high of $380.58. On Wednesday trading session, the stock climbed 1.3% at $343.98 and 50 days moving average extended to $352.69.
Another significant valuation metric, Relative Strength Index, dropped on Tuesday’s trading session to the lowest level since September 2012. Netflix, Inc. (NASDAQ:NFLX) stock has also dropped below the rising trendlines on the longer term weekly charts, according to the chart watchers. Dash said that the stock price was hovering around the trendlines and touched it a few times, but no significant movement was seen prior to this week.
Newton of GreyWolf says that a longer span of time is needed to reverse an uptrend, which was strong enough for Netflix, Inc. (NASDAQ:NFLX), in the past year. As of now, the current movement is the first sign that the stock is facing some headwinds. However, structurally the stock is in a very good position.