Netflix (NFLX - Get Report) has been one of the most consistently volatile names in the last year, slingshotted up and down by a seemingly perennial mountain of headline risk. The last few months have been positive for NFLX. The firm has staged a parabolic move since August, more than tripling as investors piled into oversold shares. But parabolic moves aren't sustainable, and now looks like a good time for investors go take gains.
Netflix is currently forming a head and shoulders top, a pattern that indicates exhaustion among buyers. The head and shoulders is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head. The sell signal comes on the breakdown below the pattern's "neckline" level, currently at $175.
While the head and shoulders top in Netflix is tiny, indicating short-term trading implications, the fact that it comes at the top of a parabolic move adds a lot of potential downside to this setup. I wouldn't be surprised to see a major retracement here, especially given the volatility in this stock.If you decide to actively short shares, do yourself a favor and keep a tight stop in place.