Successful Stock Signals for Traders and Portfolio Managers: Integrating Technical Analysis with Fundamentals to Improve Performance, + Website

CHAPTER 9

Classic Top, Death Cross, Double Bottom, Bull Trap, and Dead Cat Bounce, with Netflix Exhibits

CLASSIC TOP: END OF A LONG-TERM UPTREND

Netflix shows the classic top, rolling over after a long run up to above $300 in Exhibit 9.1. Then like dominoes falling, the technical sell signals warn of impending disaster and a drop to $62. First, the short-term signals fall, the on-balance volume (OBV), stochastic, and MACD. OBV, leading the other indicators in Exhibit 9.1, had flattened out in a top formation for many weeks. Next appear the violations of the 20- and 50-day moving averages in Exhibit 9.1 and the 200-day moving average in Exhibit 9.2. The last sell signal to show on the chart is the lagging death cross as the 50-day moving average drops below the 200-day in Exhibit 9.3. By then, price is cascading down in a free fall. There are no supports on the way down for a sharp selloff like this except the bottom. Finally, there is exhaustion selling and the dead cat bounce up that sucks in the bargain hunting bulls for a bull trap from $62 to $133 before collapsing again to $52 in Exhibit 9.4. This chart is an unmitigated disaster that portfolio managers would love to avoid. Selling at the bottom kills their portfolio performance. Portfolio managers must catch the early sell signals before the fundamental defects become well known. For that they must learn to use technical analysis.

EXHIBIT 9.1 NFLX, August 10, 2011, Weekly

Source: StockCharts.com.

EXHIBIT 9.2 NFLX, June ...