By Carl Swenlin
I am a TV addict, and my kids nagged me forever to get a Netflix subscription. Finally, my son gave me a trial subscription, and they were right, I loved Netflix. A really great service at a reasonable price. Then suddenly they initiated a huge price increase and split their DVD and streaming services into two companies. And I go from loving Netflix to, well, not hating Netflix, but being very, very annoyed with them. One minute I’m a satisfied customer, next I’m looking for alternatives. It is one thing for a company to evolve along with the business climate, it is another to to be so utterly inept at implementing change that the company alienates most of its customer base and has nearly half threatening to quit the service. There are plenty of stories on the Internet, if you are interested in the details.
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(This is an excerpt from the September 23, 2011 blog for Decision Point subscribers.)
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My purpose is not so much to vent (it does feel good, though), but to explain the story behind the Netflix chart. The 5-year chart below shows NFLX moving up out of a base of about 25 in 2009 and starting a steady up trend in 2010 that finally reached the all-time high of about 304 just before the announcement of the change this summer.
I didn’t own NFLX, but I wanted to demonstrate how an investor could have used simple technical analysis techniques to identify a good time to exit the stock before prices really crashed. There were two strong exit signals in August — first the rising trend line was violated, and next the 20-EMA crossed down through the 50-EMA. Either signal would have been sufficient by itself, but occurring so close together they gave very strong evidence that the trend had changed.
I will admit that not all charts give clean, clear messages like this one, but there are plenty that do. And it does not take a lot of time or experience to incorporate these simple technical tools into the decision-making process.
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Technical analysis is a windsock, not a crystal ball.
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Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in market timing, stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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