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Netflix (NFLX) : Kumo resistance

Having break kumo support couple of days back on July 28, NFLX is now making an attempt to turn the trend around.

Part of this rally is made by calls from Morgan Stanley and Piper Jaffray that NFLX will hit a target price of $140.

On my part, I will admit that I do not know what are the fundamentals of NFLX.

My reading of the Ichimoku chart for NFLX is still bearish.

Let’s take a look at the chart.

1. We can see that currently NFLX has rebounded from the lows of 95; as highlighted in the possible support levels to watch.

2. More importantly, we can see that NFLX is now expected to hit the kumo resistance soon at around $105

3. We can also see more resistance form by both the Tenkan sen and Kijun sen at around $109 which happens to be where the gap is. If you think of the Tenkan sen and Kijun sen as a form of moving average, then we can easily infer that the resistance at 109 will be very high.

4. Next, I want to point you to the edge of the chart which I have highlighted with the words ‘kumo twist’. In short, the leading kumo at the edge has confirmed that the trend has changed. The key word is changed; not ‘changing’. It is often very difficult for a trend to change. But, when the trend change, it is difficult to change it back again.

5. Putting all these together, we have :

  • Kumo resistance at 105
  • Tenkan sen and Kijun sen at 109
  • Kumo twist

I have a simplistic view of NFLX vs other counters that is above $100. The key word is easy reach to customers. For a company that revolves around consumer adoption, I would like to compare them to AAPL and AMZN.

When the above 2 goes above $100, we know it is because they have build a moat and their products and services are used by consumers worldwide.

However, I cannot assume that is true for NFLX. Currently, its success seems to be confine within US itself (the growing subscriber base).

I do not have answers to their future growth. However, I do have questions in mind:

1. What is the cost of acquiring content for global distribution? Off my mind, I think it is very difficult to achieve this. Media companies are well known to be very edgy over territorial rights and distribution issues. Without their cooperation, their growth is hampered.

2. Outside of US, what will be their perceived next biggest market? Will it just be Canada? Germany, where the language is different? UK? Or will it be China (where piracy is high and they already have alternatives FREE streaming services and products?

3. Regulations and other issues. Remember Google and the issues they face in China? How about RIMM and the challenges in India and now Middle East? There are some issues that can be solved easily and there are some that may not be solved? Content consumption and censorship is one of them.

4. In other words, I see the cost of expansion to be increasing even if NFLX choose to license their infrastructure to partners overseas. While costs increases, I don’t see the cost of subscription going up either. NFLX subscription model is like subscribing to cable.

5. Competition. I have mentioned it before and I will highlight it again. What is stopping Apple and even Amazon from going into this business?

6. Until NFLX, comes out with more positive news, for example news on market development, I will take the analysts report with a pinch of salt at this moment.