Netflix (NFLX - Get Report) shares have been making a series of lower highs and higher lows this year, which has defined a large symmetrical triangle on the daily chart. A bullish hammer candle formed in Thursday's session after a retest of the support line of the triangle. This candle has an opening and closing range positioned at the upper end of its overall range and is considered a bullish reversal signal when it forms at a key support level.
Netflix is overdue for a bounce higher, but it's the price action around the parameters of the pattern that will determine the intermediate-term direction of the stock.
The triangle downtrend line drawn off the highs of this year is currently intersecting with the 38% Fibonacci retracement level of the important 2015 range, and at the same time, the triangle support line is intersecting with the 50% retracement level. These reinforced levels now take on greater technical and psychological significance as potential factors in determining the future of the stock price.
The default timeframes on the relative strength index and moving average convergence/divergence are reflecting the most recent down leg in the pattern, but these price momentum indications can turn quickly as they did in May when that low retested the 50% area and established a pivot point for the uptrend line. Chaikin money flow is well into negative territory, and accumulation/distribution is below its 21-period average, which adds additional downside pressure.
The price and money flow indicators, however, are secondary to the price action at this important juncture of support and resistance. A day of follow-through strength that closes in upper candle range is a good risk/reward long entry point using an initial stop under the triangle uptrend line, but a lower candle close that takes out the uptrend line is a speculative short entry point that would require a disciplined trailing buy-to-cover stop.