Chart Advisor: Netflix Gap-Fill and Chill

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By J.C. Parets & All Star Charts

Friday, 20th January, 2023

1/ Netflix Gap-Fill and Chill

2/ Euro Stoxx Challenge Former Resistance

3/ Rates Roll

4/ Will Gold Clear the Next Hurdle?

Investopedia is partnering with All Star Charts on this newsletter, which both sells its research to investors, and may trade or hold positions in securities mentioned herein. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice.

1/ Netflix Gap-Fill and Chill

Earnings reports and the market’s reaction to such news often cause significant price movements at key levels. Shares of Netflix (NFLX) have illustrated a textbook example of this kind of behavior over the past several quarters.

Here’s a look at a daily bar chart marked up with price gaps that occurred on the heels of recent earnings reports.

Source: All Star Charts, with data provided by Optuma

In April of last year, Netflix fell by more than 35% in a single day after releasing disappointing results for the first quarter of 2022. This set the stock up to carve out a rounding bottom formation over the next six months.

In October, NFLX experienced another significant price gap on the heels of its earnings—only this time, price gapped higher. Notice how the Q3 earnings gap took place right at the highs from the gap down in April, sending price back into the volume pocket that was formed earlier in the year.

Over the subsequent three months, NFLX rallied in an orderly manner and managed to fill the entire gap from its Q1 2022 earnings flow. Today, after the company announced another positive report for Q4, price again gapped higher, this time exiting the volume pocket and filling in the gap.

2/ Euro Stoxx Challenges Former Resistance

International equities have been leading the way higher on both absolute and relative terms since the major indexes bottomed in October.

The Euro Stoxx 50 ETF (FEZ) has soared over 40% from its lows, closing this week at its highest level in ten months. However, price is approaching a critical level of overhead supply.

This resistance zone coincides with a shelf of former highs from 2011, 2014, and 2018, making it a significant level of interest.

Source: All Star Charts, with data provided by Optuma

We shouldn’t be surprised to see a period of sideways action and a digestion of gains at this polarity level over the near term.

However, if the bulls retain control in this zone, it could be a constructive development for international stocks.

3/ Rates Roll

Ever since the U.S. dollar violated its year-to-date trendline in November, the question has been: Will U.S. Treasury yields follow?

Yesterday we finally got our answer: yes.

Long-duration assets around the world, from Chinese tech stocks to emerging market bonds, stand to benefit from falling yields. Below is a triple-pane chart of the U.S. five-, 10-, and 30-year yields:

Source: All Star Charts, with data provided by Optuma

The five-year and 10-year yields recently undercut their June pivot highs. If the shorter end of the yield curve continues to fall, it could only be a matter of time before the longer end follows suit.

On the flip side, if the 30-year yield fails to follow suit, it could call into question the recent trend.

4/ Will Gold Clear the Next Hurdle?

Gold futures are holding above their prior 2011 highs. 

This is where gold peaked during the last commodity supercycle, and as such it represents a logical level of potential resistance.

Source: All Star Charts, with data provided by Optuma

Whether traders have any psychological attachment to those former highs is beside the point. Sellers have proven that a significant amount of supply exists at these former highs.

However, gold challenged this crucial level today for the fourth time in two years. The more times a level is tested, the greater the likelihood it breaks.

Regardless of how price moves, a close above the 2011 high of $1,924 is a clear indication of strength for the shiny yellow rock.

Originally posted 20th January, 2023

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