The security tends to suffer after run-ups to its 80-day moving average
The shares of Netflix, Inc. (NASDAQ:NFLX) fell on Monday, dropping with fellow FAANG stocks. While NFLX stock is attempting to recoup some of those losses today, it could be time to speculate on more short-term downside for the streaming entertainment giant, if recent history is any indicator.
Netflix stock was last seen 2.4% higher at $358.72, as traders applaud a stellar night at the Emmy Awards. However, the security is still staring up at its 80-day moving average. In the past three years, there have been four other times at which Netflix shares moved to within one standard deviation of their 80-day trendline, after spending at least 60% of the past two months and eight of the last 10 sessions below the moving average. After these signals, NFLX was down nearly 4%, on average, one month later, and lower 75% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White.
In addition, the FAANG stock has struggled recently to top the $370 area -- which represents a roughly 100% year-over-year gain -- and has been in a channel of lower highs and lows since touching a record high of $423.20 on June 21. Not to mention NFLX is facing another potential short-term speed bump in the form of notable call open interest at the soon-to-expire September 370 strike.
In fact, short-term traders have rarely been more call-heavy on Netflix in the past year. The stock's Schaeffer's put/call open interest ratio (SOIR) -- which measures options expiring in the next three months -- sits at 0.89, in just the 15th percentile of its annual range.
Echoing that, the stock has racked up a 10-day call/put volume ratio of 1.71 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This indicates speculators have bought to open nearly two NFLX calls for every put in the past two weeks. What's more, the ratio registers in the 90th percentile of its annual range, pointing to a much healthier-than-usual appetite for bullish bets over bearish.
In conclusion, with several potential layers of resistance overhead, the FAANG stock could be due for some short-term headwinds. From current levels, another 4% retreat from the 80-day moving average would put the shares around $344.37 in the next month.