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Netflix Earnings Preview: How to Trade Shares

Netflix will report earnings after the close of trading Thursday. Expectations are high but the stock has cooled off. Can the stock muster a rally?

Netflix  (NFLX) - Get Free Report has been one of the best performers amid the coronavirus pandemic. With earnings due up after the close on Thursday, investors will find out if the company has been able to maintain momentum.

Consumers flocked to the top streaming platform during the early stages of the lockdown. When I say they flocked, what I really mean is that they came in droves.

Netflix reported 15.77 million new subscribers last quarter, blowing past consensus estimates of roughly 8.5 million. Here are three things to watch for in the current quarter. 

The momentum in its business has led to momentum in its stock price, with Netflix shares up 80% from the March low. 

Netflix is now the best-performing FAANG stock over the last three months. However, on a year-to-date basis, its 61.7% return is trumped only by  (AMZN) - Get Free Report, another pandemic favorite, which is up 62.8%. The next-best performer from the group is Apple  (AAPL) - Get Free Report, up “just” 33.1% so far this year.

Amazon and Apple are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AMZN or AAPL? Learn more now.

Trading Netflix Stock

Daily chart of Netflix stock.

Daily chart of Netflix stock.

Obviously when a stock price surges on a robust result, expectations climb along with it. Now Netflix has the tough task of delivering on those high expectations.

Luckily, the stock has pulled back meaningfully in the last few days. On Monday, shares burst to new highs, but failed to hold those gains after the stock reversed and closed lower by 4.2%.

Netflix stock fell fractionally the next few days, although it continues to hold the 10-day moving average. While this is solid price action for short-term bulls, it’s less relevant with a binary event like earnings on the table.

The weekly range can help traders quite a bit in this case. With a low of roughly $490 and a high of approximately $575, we know what levels Netflix must clear to gain momentum in either direction.

If the reaction is bearish, see if Netflix stock breaks below the two-times range at $495 and loses this week’s low at $490. If it does, it puts the 10-week moving average in play near $467, followed by the 161.8% extension and 50-day moving average at $456 and $451, respectively.

Should Netflix stock rally on the results, let’s see if the stock can take out the 261.8% extension up at $559, followed by this week’s high near $575. Above the latter and the three-times range extension is on the table near $598.