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Trading Netflix After Its Large Gap Lower

By Jani ZiedinsStock MarketsApr 22, 2021 12:15AM ET
Trading Netflix After Its Large Gap Lower
By Jani Ziedins   |  Apr 22, 2021 12:15AM ET
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SPX Daily Chart
SPX Daily Chart

Following two days of selling, the S&P 500 came roaring back Wednesday and added 0.9%. Not bad, not bad at all.

As overpriced as this market seems, dip buyers cannot help themselves.

As I wrote yestersday, there were two ways to trade Wednesday based on the resulting price action:

Bounce and close well [on Wednesday], that is a buy signal with a stop under the intraday lows. If Wednesday’s selling cannot find a bottom, lock-in profits in our existing positions and agressive traders can short a violation of 4,100 with a stop just above this level.

Dip buyers took control not long after the open and this pullback disappeared even quicker than it came. But that’s the way this usually goes. Either dips bounce shockingly quickly or the selloff goes a whole lot further than anyone expected.

At this point, this looks like just another shockingly quick bounce.

As I described yesterday, Wednesday’s bounce was buyable with a stop under the dip’s lows. As long as the index remains above this level, the bounce is alive and well.

But if prices fall under 4,120, the selling isn’t done yet and an aggressive trader can even try their hand at a quick short.

While the index trade worked nicely, Netflix (NASDAQ:NFLXdid the one thing I least expected, hold steady following a large gap lower.

Normally, big moves either accelerate or they reverse. Almost never does the pre-market get it exactly right and put the stock right where it should be. That’s like flipping a quarter and having it land on the edge. But almost never is not the same as impossible and occasionally these things happen.

That said, I don’t expect this stability to last for long. Either the selling picks up steam or the dip buyers come rushing in. It didn’t happen Wednesday, but the same trade is still valid for Thursday.

Buy the bounce in NFLX or short the breakdown. This stock is going to make a big move in one direction or the other, we just need to wait for the market to tell us which way it wants to go. (Not bouncing Wednesday suggests dip buyers are scarce and that gives the edge to NFLX bears.)

Trading Netflix After Its Large Gap Lower

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Trading Netflix After Its Large Gap Lower

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