Can NFLX break through resistance with breakthrough returns? Here’s what you need to know | Don’t ignore this chart!

It’s showtime! Netflix, Inc. (NFLX) is scheduled to report first-quarter earnings after the stock market closes on Thursday. The stock is close to a key resistance level. Will it break through when earnings are reported? Or will it fall? The answer depends on whether you win or lose.

Wall Street analysts expect outstanding results. NFLX is expected to report adjusted EPS of $4.52 per share, compared to $2.88 in the year-ago quarter. Sales are expected to increase 13.6% from the previous year to $9.27 billion.

A Long-Term View on NFLX Stock

Looking at NFLX’s weekly chart (see below), the stock is approaching all-time highs. NFLX stock is trading above its 13-week simple moving average. (SMA) and relative performance This suggests that NFLX is underperforming the S&P 500 ($SPX) on a weekly basis.

Note: The 13-week SMA represents one quarter.

Figure 1. Weekly chart of NFLX stock. NFLX has been trending upward since July 2022. Whether the stock continues in this direction will depend on the earnings report. The stock is nearing its 13-week SMA and approaching strong resistance.Chart source: StockChartsACP. For educational purposes.

If NFLX beats analyst estimates and provides strong guidance, the stock could hit an all-time high and follow through enough to continue its rally. NFLX has a lot going for it.

Despite increased competition from Apple (AAPL), Amazon (AMZN), Walt Disney (DIS), and Comcast (CMCSA), NFLX has maintained a leading position in the streaming space. NFLX plans to continue releasing more content and expand its sports offerings, including live events from Mike Tyson and Jake Paul this summer. There is a wide range of other sports content available, all expected to appeal to a wider audience.

If all goes as expected, NFLX could surge well past $700, but the earnings report could move the stock either way. With earnings releases coinciding with an overall stock market correction, NFLX could see a major sell-off if earnings are disappointing or guidance is weak. Areas that may be slightly underperforming include advertising revenue and new member numbers.

If the stock falls below its 13-week SMA, there could be a repeat of what happened in late 2021 after the stock hit an all-time high. Notice how steep the descent is.

short term perspective

Looking at the daily chart, NFLX stock is trading just above its 50-day SMA, but the Relative Strength Index (RSI) is, an indicator that measures momentum, shows an interesting picture. NFLX’s stock price has been trending upward (late January to April 2024), but its RSI (bottom panel) has been trending downward. This raises a red flag because it indicates momentum is slowing. This is a bearish divergence.

Figure 2. Daily chart of NFLX stock. The difference between price and RSI is concerning, but this may be because investors are waiting for earnings results before deciding to buy or sell NFLX stock.Chart source: StockChartsACP. For educational purposes.This calls for a complete overhaul to ensure NFLX is technically robust. It is helpful to add StockCharts Technical Rank (SCTR) to your charts.. The SCTR score is around 97, indicating that NFLX remains a strong stock (top panel).

final thoughts

Looking at options quotes for NFLX on StockCharts, the implied volatility is: (IV) The ratio of options expiring on Friday, April 19 is approximately 150%. This means you can expect a lot of volatility in NFLX’s stock price around its earnings date. This may explain why RSI has fallen. Investors are awaiting earnings reports.

Out-of-the-money call option activity also increased. This indicates that the directional bias is upward at the time of this writing..

Figure 3. NFLX options data. Options expiring on April 19th have high IVs, and out-of-the-money call options have seen increased trading activity.Chart source: StockCharts.com. For educational purposes.

conclusion: NFLX is expected to be more volatile after the market closes on Thursday. If you are considering adding NFLX to your portfolio, wait until the price stabilizes after the earnings release.

Learn more. Do you want to trade options to generate additional income or hedge your portfolio holdings? Check out this video:

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.