Shares of Netflix, Inc. (NASDAQ:NFLX) rallied big Wednesday following its fourth-quarter earnings report. Netflix beat earnings expectations, and while NFLX stock still is in a bigger-picture consolidation phase, shares still have more upside in the intermediate-term.
The numbers news on Wednesday: Netflix reported revenues of $1.485 billion for the fourth quarter, up 26% on a year-over-year basis. Meanwhile, its earnings came to 72 cents per share on an adjusted basis, which crushed analyst expectations of 45 cents per share.
When it comes to a revolutionary growth company such as NFLX, investors often are more concerned with the company’s growth rather than profits. As such, what really inspired investors on Wednesday was that it added 4.3 million new subscribers globally in the fourth quarter.
Also providing a bit of confidence is that Netflix’s international expansion continues to grow well, and apparently the initial concerning signs from the European expansion last autumn have proven to be nothing to worry about.
Netflix (NFLX) Stock Charts
On the multiyear weekly chart of Netflix, we see that after NFLX stock broke to new highs in September/October 2013, shares began a bigger-picture consolidation phase. From this angle, the technical picture offers us a clearly defined area of support around the $300 mark — this acted as support until autumn 2013, and has since been successfully been tested several times.
It has been my experience that while technical analysis on strong growth stocks like Netflix can offer us great areas of reference, as long as the underlying fundamental growth picture remains intact, it pays to somewhat discredit any bearish-looking patterns. As such, much has been made of a potential bearish head-and-shoulders pattern developing on the NFLX stock chart above (blue bubbles), but aside from quick trades, I would caution against leaning tactically short on a stock like Netflix.
On the daily chart below, we see that during the past month or so, NFLX stock has been consolidating near the lower end of the bigger-picture trading range discussed above (just above the $300 area). Wednesday’s explosive 17% rally, which also came on a big spike in volume, blasted the stock past its 50- and 200-day simple moving averages (yellow and red lines, respectively) and also moved Netflix stock into the still unfilled down-gap from Oct. 16.
The top of this gap around $448 has become the next logical upside target in the near term.
Active traders could look to buy NFLX stock for a near-term trade at $415 or higher for a move into $448. As usual, any bearish reversal day in Netflix would negate the setup until the stock again resets for a move higher.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.