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Earnings In Focus: Netflix

Hey 5-Star Trader,

We’ve talked about this day for weeks, and it’s finally here – the day Netflix (NFLX) reports earnings. 

Why is this so critical?

Netflix is the first core technology company to report earnings each season, and historically, it will set off a chain reaction throughout the rest of tech. While on one hand, it may not seem to make sense that a company like Netflix could potentially move Facebook or Google stock, it often does, especially when the reaction is to the downside. In the instance that Netflix disappoints investors, particularly in an instance like last quarter, where it fell over 20% upon the report, this can have a far-reaching impact on the market as a whole. 

How can this happen? This happens oftentimes when the executives will note headwinds, lower guidance, or mention factors that could impact other technology companies. It can oftentimes have the impact of throwing a so-called ‘wet blanket’ of pessimism over the Nasdaq. When one core technology company notes issues, it can spook investors across the market, and send a broader shockwave that impacts far more than just that company.

Now, I could dive into the details as far as what could send NFLX either higher or lower. While I find them interesting to read about, particularly post-report, I find the stats and technical pattern to be a little more helpful in judging where the stock price could end up. 

To do that, I consult the Hot Zone. Let’s check out an image of NFLX in the Zone below:

This is a screenshot of Netflix over the course of the past year. As you can see, based on the bubbles, NFLX has traded lower the last 4/4 quarters, despite beating earnings estimates ¾ times. This is not a great look for the stock, as I usually like to see investor confidence post-earnings on a company that is beating. In this case, not only does that not exist, but also NFLX really took it to the chin last quarter. 

 

Key Facts:

  • NFLX is trading around ~$337. The MMM (market maker expected move on earnings) is ~$33. The low on the year is $329.82. This means, that even if NFLX has a ‘normal,’ MMM, NFLX would make a new low on the year.
  • NFLX has key resistance at the 50 SMA between $370-380. IF NFLX happened to trade higher, within the expected move, all it would do is trade directly into resistance! 
  • XLC, Netflix’s primary sector, is in a downtrend and has been for some time. It’s currently stuck under key resistance, with a squeeze firing to the downside. I have a target of $60 in this sector. 
  • A move below $290 could be catastrophic for NFLX, and send it careening lower, like last time.
  • A move into $380 would be a great place to short it in relation to the trend.

We’ll see what happens upon the report. I’ll be watching and waiting, especially paying attention to how the stock moves after the fact, and noting any key considerations the executives mention. I’ll be discussing this move, along with many others this week and next, in my Mastery program. In addition to Netflix, we have many other big names coming up, including Tesla (TSLA), Snapchat (SNAP), Lam Research (LRCX), and more.

-Danielle =)

For more market commentary, try my Stacked Profits Mastery Program. There, I send out real-time alerts for actionable entry and exit points and share my exclusive thoughts on market sentiment.

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