Netflix, Inc. (NFLX): What’s Next for Netflix Stock?

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On Tuesday shares of Netflix, Inc. (NASDAQ:NFLX) fell nearly 13% after the company reported its latest earnings results the night before. While NFLX beat the analysts’ bottom-line expectations for the first quarter, it was a revenue miss and the user growth outlook for Q2 that scared investors.

Beat the Bell: Netflix, Inc. (NFLX)The resulting price action on Tuesday reversed Netflix stock lower at a confluence of technical resistance. I will say that NFLX remains a big growth company, and at some point it will once again provide a good buying opportunity. But for now, the path of least resistance looks like it will be down, for weeks if not months.

While Netflix added 6.74 million subscribers in the first quarter, which was above expectations, the company now sees new user growth at 2.5 million in the second quarter, which was below expectations. It just goes to show that it’s all about outlook — particularly for crowd-favorite growth stories like Netflix stock.

On the back of this, most analysts kept their positive ratings, but many lowered their price targets to the low to mid-$100s.

When I last chimed on on NFLX on April 8, I said that ” chasing NFLX higher from here without any clear breakout looks to be a high-risk, low-reward move” and highlighted the difficult technical juncture for the stock.

Furthermore, I said aggressive traders could look to leg into partial short positions while more patient players might first want to judge the reaction to earnings.

Netflix Stock Charts

For some context and a refresher, let’s note that in 2015, NFLX twice rallied so steeply that it pierced above the rising wedge pattern, as marked by the black lines. But both of those spikes were promptly rejected, and in January, the stock broke below the lower line of this rising wedge.

In many ways, this is simply a classic mean-reversion move after a stock defies gravity for too long. In this case, Netflix’s corrective move doesn’t appear to have run its course.

Netflix stock nflx weekly chart
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On the daily chart, we see that while NFLX stock last week marginally pushed above its 100- and 200-day moving averages to stop out the weak hands, shares did run out of steam right at the diagonal resistance line. And with Tuesday’s selling pressure, Netflix confirmed the area of technical resistance as significant.

This bearish reversal also took place at the 61.8% Fibonacci retracement line from the late 2015 highs into the early February lows, and thus also marked an important lower high.

Netflix stock NFLX daily chart
Click to Enlarge

From here, barring any major and sudden bullish reversal, Netflix stock looks to be on target go move back toward the $80 area and possibly lower.

Traders and active investors could either look to short NFLX or buy some put spreads using June options, as implied volatility is relatively cheap.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/netflix-inc-nflx-stock-what-is-next/.

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