Netflix, the streaming video giant, is scheduled to report second quarter earnings on Thursday after the closing bell. What should traders know going into this event, and will there be a buying opportunity after the report is released?
Wall Street is expecting Netflix to earn about $1.81 per share, on revenue of just over $6 billion dollars. Analysts are looking for net subscription growth of 8.26 million, but Netflix admits that due to current circumstances, that figure is difficult to predict.
If Netflix crushes its net subscription growth estimate, the stock could take off. However, traders should know that stocks could be on the cusp of a sector rotation away from high-flyers like Netflix.
Check out this chart of the major indices. The Nasdaq 100, shown in blue, is outperforming the S&P 500, in red, and the Dow Jones Industrial Average, in green, by a wide margin.
Notice how the Nasdaq is beginning to dip, just as the Dow 30 is turning higher. This could be a signal that sector rotation has already begun.
While Wall Street believes it has a handle on Netflix's earnings, market reactions to these events can be volatile and unpredictable. Because of this, it makes sense to determine in advance the ideal price to pay for Netflix.
According to the chart, traders should look to buy Netflix is $450. That's the approximate location of the stock's 50-day moving average, in blue. Black arrows indicate numerous occasions over the past few months when a pullback to that moving average resulted in a move higher for the stock.
There's no way to tell if Netflix will reach that price, but traders should pay attention to a bearish candlestick pattern that has formed on the chart. The bearish pattern, known as dark cloud cover, is highlighted in yellow.
This is a trend reversal pattern, so it could be hinting at a pullback. The pattern occurred on high volume, highlighted in blue. This adds significance to the pattern.
The bottom line: traders shouldn't be surprised if a buying opportunity in Netflix occurs sometime after Thursday's earnings report.
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