The Next Big Move in NFLX Stock? Look Toward Earnings

by Serge Berger | April 9, 2014 8:08 am

Although Tuesday’s oversold bounce in stocks was a low-quality one (in a broader sense), many beaten-down tech stocks bounced off crucial medium-term support areas. Netflix (NFLX[1]) stock was right in the middle of this bounce, springing from its 200-day moving average after having touched it Monday for the first time since late 2012.

netflix-nflx-stock[2]As usual with crowd favorites like NFLX stock, the past two days also were rife with news, which likely further helped to boost the Tuesday bounce.

Brokerage house Stifel issued a positive note[3] on several momentum names — including Netflix stock — saying that NFLX and others could rally as earnings reports loom in coming weeks. (Note: Netflix is scheduled to announce earnings on April 21 after the bell.)

On Monday, Oppenheimer also had positive comments[4] about the momentum stocks, including NFLX, saying the selloff has created a buying opportunity.

The charts — at least in the intermediate term — are echoing some of this analyst positivity.

NFLX Stock Charts

To gain a little perspective, let’s start out with the multiyear chart of NFLX stock, stretching back to 2011. The red line is the 200-day simple moving average, which, prior to Monday, Netflix stock hadn’t visited since December 2012.

netflix-nflx-stock-charts-multiyear
Click to Enlarge

Note that when NFLX stock rallied strongly into its July 2011 highs, it ultimately wound up breaking below its 200-day moving average in August, which accelerated the downward press. Through the medium-term lens, only time will will tell whether NFLX will break below the moving average this time around and mean-revert in a more meaningful fashion again.

The upcoming Netflix earnings report could well be the trigger for that.

Given the steep rally to start 2014 — which came on top of a great 2013 — NFLX stock was overdue for a mean-reversion move lower. In percentage terms, Netflix shares dropped close to 28% over the past month or so, and by having revisited the 200-day MA, they also filled their up-gap from the January earnings announcement. All of this could lead NFLX to bounce a little in the days heading into Netflix’s report.

More importantly however, the current setup in NFLX stock offers very defined risk for the active investor.

Namely, Monday’s low around $331 — just a touch below the 200-day MA — is the level that traders could lean against on the long side, using it as an absolute last resort of support. (A break below $331 could get NFLX to accelerate to the downside once more.)

netflix-nflx-stock-charts-daily
Click to Enlarge

Looking up, depending on the velocity of any continuation of Tuesday’s b0unce, NFLX stock might be able to rally all the way back to its 100-day MA (blue line), currently near $385. However, taking upside targets in $10 increments might be better risk management.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here[6]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  2. [Image]: http://investorplace.com/hot-topics/beat-the-bell
  3. Stifel issued a positive note: http://www.benzinga.com/analyst-ratings/analyst-color/14/04/4455064/stifel-says-buy-the-dip-in-facebook-retailmenot-netflix-
  4. Oppenheimer also had positive comments: http://www.wkrb13.com/markets/288817/netflix-upgraded-to-outperform-at-oppenheimer-nflx/
  5. Beat the Bell: https://order.investorplace.com/?sid=FQ8104
  6. Essence of Swing Trading e-book here: http://www2.marketfy.com/l/15492/2013-07-23/55sww

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