Netflix, Inc. (NASDAQ:NFLX) stock dropped about 12% last week after the company’s less-than-exuberant growth rate and outlook. Chart watchers likely have noticed the struggling state of NFLX stock for the better part of the past eight months. From where I sit, last week’s post-earnings selling has only further increased the odds of at least a retest of Netflix’s February lows.
On July 18, Netflix reported earnings of 9 cents per share, which was higher year-over-year and good enough to topple analyst forecasts. As with any growth company, however, what’s more important for NFLX stock holders is the potential for top-line growth going forward.
In the most recent quarter, Netflix added “only” 1.68 million subscribers versus the 2.5 million new subscribers expected. The weak subscriber growth within the United States further rang alarm bells that the market is getting saturated, and that other companies such as Amazon.com, Inc. (NASDAQ:AMZN) are taking business away from Netflix. Either way, neither the user growth numbers nor the charts are speaking for any immediate dramatic bullish turnaround in NFLX stock.
NFLX Stock Charts
Starting off with the multiyear weekly look at Netflix stock, we see that last week’s selloff also left behind a bearish red candle on the weekly chart. That has NFLX once again weighing on the blue support area that has been in place since August 2015. This technical “confluence support” zone also is made up of the stock’s blue 100-week simple moving average and the diagonal black support line from the 2012 lows.
In other words, the longer that NFLX stock weighs on this zone, the better the odds of an eventual break below that level. That could result in a flush-like selling spree.
On the daily chart, we see that after NFLX stock broke below diagonal support and its red 200-day MA this past January, it rebounded sharply toward this former line of support. When support became resistance in April, the stock resumed its path lower. And although Netflix has yet to retest its February lows around the $80 mark, the path of least resistance continues to point lower.
Should NFLX stock manage to pierce below the $80 mark, then there still is an unfilled up-gap from April 2015 that could fill around the $70 mark. This could become a downside target point for short sellers.
Active investors could look to short some NFLX stock or buy cheap puts or put spreads now that implied volatility has dropped off after earnings. Any sharp bullish reversal should serve as a warning signal that the stock may be ready to attempt a more serious bounce.
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