A quick glance at NFLX’s daily chart shows it has significant additional downside potential.

The most obvious downside target is the 100-DMA at 338.73.  But, the 200-DMA is approaching the white channel midline and should cross it at around 298-300 on or about August 6.  It makes for a nice downside target if the SMA100 doesn’t hold.

Should the SMA200 and channel midline fail, the bottom of the white channel is currently around 200 and (obviously) rising.

As an aside… I’ve been mystified as to the value ascribed to the company based on its ability to produce original content.  What about the risk?  Anyone who has worked in film or television can tell you that most productions don’t turn a profit.

I don’t want to get into production. There are passionate, talented filmmakers out there and I would pollute the craft.

Reed Hastings, Inc Magazine: Dec 1, 2005

Netflix has clearly hit some home runs with House of Cards, Stranger Things, etc.  And, theoretically, producing content in-house can lower acquisition cost and diversify revenues.

But, extrapolating an unending string of popular and profitable productions is just plain silly.  Some would say borrowing $1.8 billion to fund said productions is downright reckless.

Think New Line, which followed up the hugely successful Lord of the Rings trilogy with the expensive flop The Golden Compass.  Investors would do well to remember that beta works in both directions.

UPDATE:  July 17

We’re off to a good start.