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Netflix Earnings Preview: Can 'Squid Games' Send Stock to Highs?

Netflix stock lately has been on fire, one of the best-performing FAANG components. Here's how to trade it after its Tuesday earnings report.

Netflix  (NFLX) - Get Netflix, Inc. (NFLX) Report of late has enjoyed a strong tailwind, but will that tailwind carry the stock higher when the streaming giant reports earnings on Tuesday after the close?

While Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report  (GOOG) - Get Alphabet Inc. Class C Report is the best-performing FAANG component in 2021 and over the past 12 months, Netflix has had the best short-term momentum.

Of the five-stock group, the Los Gatos, Calif., company's stock has the best one-month and three-month performances, up 7% and 18.7%, respectively.

The next best performer -- Alphabet -- is up 0.8% and 11.8% during that stretch, respectively. 

In any regard, investors now want to know whether the earnings report will be the next catalyst to send Netflix stock higher.

The company’s "Squid Games" show was introduced in September and has gotten off to a record start.

On Monday, Netflix said the show translates to a valuation of roughly $900 million when accounting for various metrics.

Does that make it a buy?

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Trading Netflix Stock

Daily chart of Netflix stock.

Daily chart of Netflix stock.

The chart shows that Netflix gained momentum long before it introduced its latest hit show.

In mid-August, Netflix stock ripped off a 20% rally, climbing in 15 out of 16 trading sessions. The lone down day accounted for a loss of just 1%.

After a mild correction, investors bought the dip and the shares rallied to highs, hitting the 161.8% extension just shy of $650.

From here the situation gets a bit trickier.

While Netflix is doing a good job holding the 10-day moving average, more downside could be in play if the reaction is bearish. That will put the $615 breakout level and the 21-day moving average on the table.

Below that puts the 10-week moving average and daily VWAP measure in play near $600, along with the prior all-time high near $593. This would be a decent buy-the-dip opportunity should it materialize. 

On the upside, keep an eye on the $647.50 level. Above $650 and we could see the start of a move up toward the $690 to $700 area.

Beware of an open north of $647 that investors sell into. In that event, we’ll have to see whether the 10-day moving average can hold as support.