How Will Netflix, Inc. (NFLX) Stock React to Q4 Earnings?

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Earnings season is off to a slow start, but it will kick into high gear next week after the Martin Luther King Jr. Day holiday. The slate of reports is heavy in tech stocks, including Netflix, Inc. (NASDAQ:NFLX), which is scheduled to report on Wednesday, Jan. 18, after the bell. This could lead to new trading opportunities, as NFLX stock and many others are trading at or near all-time highs and will have to prove themselves at these levels.

Beat the Bell: Netflix, Inc. (NFLX)Netflix stock has a history of gapping up or down following its earnings reports. Sometimes these gaps lead to new rallies, sometimes they lead to lasting selloffs, and sometimes they lead to absolutely nowhere.

If we want to evaluate what the path of least resistance will be for NFLX shares this time around following earnings, we should start by seeking out a little perspective.

NFLX Stock Charts

On the multiyear weekly chart, we see that NFLX stock has a well-defined multiyear support line that also coincides with its blue 100-week simple moving average. When the stock became overextended in late 2015 and subsequently dropped/corrected 40% over the course of two months into the February 2016 lows, this line came in as support.

NFLX stock chart weekly view
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At the same time, NFLX stock also has well-defined resistance at the late 2015 highs around the low $130s. As such, the question following the upcoming earnings report is whether Netflix can gap and hold above previous resistance (the previous all-time highs around the $130s), or whether it will once again mean-revert lower.

While Netflix shares have rallied strongly since last summer, through this multi-year lens the stock remains in a bigger picture consolidation range, albeit only marginally so.

On the daily chart, we see that as a result of the recent six -month rally, the stock’s intermediate-term moving averages — the 50-day (yellow), 100-day (blue) and 200-day (red) — are all nicely pointing higher. The 50-day MA has acted as well-defined support since last October. This is to say you should respect any break and hold below the 50-day following the earnings report. In fact, that could lead the stock to drop back to the low $110s as a next support level.

nflxdaily
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However, should NFLX stock gap higher after earnings and clear the low $130s in a more meaningful way, one could argue that the stock has broken out of its year-and-a-half big-picture consolidation. Structurally, that should be bullish.

But even if an up-gap and rally were to occur following earnings, from a trading perspective, “fading” the rally upon the next bearish reversal would be the higher-probability trade. Why? After a stock overcomes a big previous all-time high, it almost always follows with a retest of the breakout area.

In the case of NFLX stock, that would be around the low $130s.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/01/netflix-inc-nflx-stock-q4-earnings/.

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