This Chart Shows Why Netflix Is Primed For A Tumble

Netflix, Inc. NFLX has been trading around $350 the past few sessions, and has been in a downtrend since it posted its high of $423 in late-June. The stock fell to a low of $310 on August 20th, before rebounding back to $376 on August 30th. So where is the next leg in Netflix likely to go?

From the Elliott Wave perspective, the most likely path for Netflix is down. Technical analysis suggests we should see continued weakness and selling pressure to about the $270 level over the next two months.

This projection is based on the tendency of wave C to equal Wave A both in terms of price and time. Let's take a look at the daily chart of Netflix below so that we can see the emerging pattern:

Based on Elliott wave theory, price action moves in waves, with five waves forming to complete the impulse sequence. This is then followed by a correction to the main trend. The correction can be of several forms, but the most common is an A-B-C zig-zag structure.

As the chart shows, Netflix has completed a 5-wave impulse move up. In addition, wave A and B appear to be completed as well. So, the current price action suggests that one final leg down, wave C, that will complete this entire 5-wave up and 3-wave down pattern. Wave C tends towards equality with Wave A in both time and price. As such, the most likely target for Netflix going forward will be to move lower to test the $270 level by the first week of November.

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