Netflix Tests Support, Faces "Cuties" Backlash.

Ed Ponsi

If you checked your Twitter feed on Thursday, you may have noticed that the term #CancelNetflix was trending. This is due to the backlash over the controversial film Cuties, which critics say depicts underage girls in sexual situations. 

cancel nflx
Trends via Twitter (TWTR). 

The #CancelNetflix trend began to gain steam when a stark warning appeared on the IMDb website. What remains unknown is how much of the stock's recent decline is due to this controversy, and how much of it is due to the general pullback in stocks that started on September 3rd.

imdb warning
Warning from IMDb.com

It's been a rough month for shares of Netflix. On September 1st, the stock closed at $556, a new all-time closing high. Less than two weeks later, the stock has lost about 12% of its value, and is testing a key indicator that has provided support for the stock on numerous occasions. 

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Netflix (NFLX) chart by TradeStation

That indicator is the 50-day moving average, highlighted in blue. The black arrows are bounces that originated from that moving average over the past six months. The area highlighted in yellow shows the stock breaking through that moving average. 

If that moving average fails to hold, the next level of support for Netflix is $466, represented by the red dotted line. 

One thing Netflix bulls currently have in their favor is the lack of volume accompanying the stock's selloff. Since the stock's decline began on September 2nd, Netflix has traded on below-average volume on four of six trading sessions.  

The bottom line: It's too early to tell how the controversy over "Cuties" will play out, but it might be serious enough to push Netflix below the one indicator that has repeatedly bailed it out. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.