DailyPlay – Netflix (NFLX) – October 18th, 2021

 Bullish – NFLX – $628.29

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Market Outlook:
Equities finished on a strong note to end the week with back-to-back gaps higher and closing near the highs of each day. With momentum turning positive and a break above $440 resistance on SPY, this looks constructive for equities overall, However, there are signs of short-term exhaustion and risks a pullback next week if corporate earnings fail to deliver significant beats. The bond rally additionally took a pause on Friday, with TLT holding its $146 resistance level suggesting a potential selloff next week and rise in yields, pressuring equities lower. 

NFLX Bullish Earnings Idea:
Our bullish earnings play for this week is Netflix (NFLX). Netflix recently broke out above its 4-month trading range of $475-575 with strong relative outperformance to its sector XLC. This momentum and relative strength are constructive into a pivotal quarter for the streaming giant. With the success of Squid Games, we expect to see higher than average subscription rates and lower churn. With its high price, we seek a creative way to seek upside exposure into earnings, while risking less than 1% of the stock’s price using a broken wing butterfly. View NFLX Trade

Sector Outlook

The Relative Rotation Graph (RRG) for sector rotation indicates that a broadening sector leadership with 7 sectors in the Improving and Leading categories and 4 sectors in the Lagging and Weakening categories.

Leading (positive relative trend and positive relative momentum): Staples joined Materials and Industrials. A steep loss of momentum puts Energy likely a day away from joining the weakening quadrant on Monday. 

Weakening (positive relative strength and negative relative momentum): Financials joined discretionary on Friday to the weakening category. 

Lagging (negative relative trend and negative relative momentum): Communications lost quite a bit of ground this week to join healthcare as the 2 sectors are now in the lagging category. 

Improving (negative relative trend and positive relative momentum): 3 sectors are now in the Improving category – Technology gained momentum on Friday to join Utilities and Real Estate in the improving quadrant. 

XLF

Financials have broken out above its $39 resistance level after a strong week from bank earnings as loan growth and M&A deals bring record revenues and earnings for 3 of the major banks. 

XLE

Energy stocks have broken out above their $56 recent highs, however, signs of exhaustion and negative divergence put in a higher risk of a pullback to breakout levels. 

Market Observations

  • INTU – Break above $550 resistance level and its 21D SMA on high volume suggests potential higher upside towards $580 targets. 
  • CHPT – Recent cross below its 21D SMA and rejection at its $20 resistance level suggests further downside. 
  • STX – Recent rejection at its $82 resistance level and 21D SMA suggests further downside towards $77 targets. 

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Tony Zhang