How to Trade Netflix Before and After Quarterly Earnings
On July 18, Netflix (NFLX) - Get Report is scheduled to begin the parade of earnings reports for FANG stocks -- Jim Cramer's term for the tech group that includes Facebook (FB) - Get Report , Amazon (AMZN) - Get Report , Netflix and Google-owner Alphabet (GOOGL) - Get Report . (Both Facebook and Alphabet are holdings in Cramer's Action Alerts PLUS Charitable Trust Portfolio.)
Netflix had a price gap to the downside after reporting its last earnings report on April 18 on disappointing guidance. Can this price gap be filled on July 19?
The daily chart shows how to trade the stock based upon the Fibonacci retracement levels from the all-time high of $133.27, set on Dec. 7, to the 2016 low of $79.95, set on Feb. 8.
The weekly chart shows that Netflix is poised to end this week with a positive profile. When the weekly chart is positive, the odds of a positive reaction to earnings is enhanced.
Analysts expect Netflix to earn 2 cents a share when it reports after the closing bell on July 18.
On Wednesday, investors ignored a downgrade by UBS, which reduced its price target to $130 from $141. TheStreet Ratings gives Netflix a hold rating.
Here's the daily chart for Netflix.
Courtesy of MetaStock Xenith
Netflix closed Wednesday at $96.43, down 15.7% year to date. It is in bear market territory, 27.6% below its all-time intraday high of $133.27, set on Dec. 7.
The horizontal lines are the Fibonacci retracement levels of the 40% decline from the Dec. 7 high to the Feb. 8 low. The stock is 20.6% above the low.
As the chart shows, Netflix staged a strong rally off its Feb. 8 low, quickly stair-stepping higher above its 23.6% retracement of $92.50, then above the 38.2% retracement of $100.31 and the 50% retracement of $106.62, to as high as $111.85 on April 15.
After a close of $108.40 on April 18, the stock gapped below its 200-day simple moving average of $106.79 on April 19 with an open of $99.49. Since then, the stock has stayed below the 200-day SMA, now at $102.59, and after a low of $84.81 on June 27, the stock is between its 23.6% retracement and its 38.2% retracement, which is a neutral zone of $92.50 to $100.31.
Here's the weekly chart for Netflix.
Courtesy of MetaStock Xenith
The weekly chart shows a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold. A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00.
The weekly chart for Netflix is positive, with the stock above its key weekly moving average of $95.61 and well above the 200-week simple moving average of $62.78. The weekly momentum reading is projected to rise to 39.32 this week, up from 33.70 on July 8.
Investors looking to buy Netflix should consider doing so on weakness to $91.79 and $82.98, which are key levels on technical charts until the end of July and the end of 2016, respectively. The annual level was tested at the Feb. 8 low.
Investors looking to reduce holdings should consider selling strength to $108.05, which is a key level on technical charts until the end of September.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.