Netflix Pulls Back, But Could Fly Into Earnings

Netflix Inc NFLX opened higher Thursday morning and then ran up another 0.63% before slamming into a resistance level at $557.54.

Two analysts raised their price targets for Netflix’s stock with UBS raising the target from $600 to $620 and Mizuho raising the price target from $710 to $900.

Netflix will kick off big tech earnings next week and traders and investors will be watching to see if the streaming service company can re-accelerate its subscriber growth for the second quarter.

When the company printed its first-quarter earnings on April 20, Netflix reported revenue of $7.16 billion which beat consensus estimates of $7.13 billion and earnings per share of $3.75, 26% above the consensus estimate of $2.96. The stock gapped down over 7% the day, however, after Netflix reported 208 million paid subscribers, which missed its guidance of 210 million.

See Also: Netflix Stock Soars, But Will It Last?

Options Traders Take Positions: On Thursday morning, options traders used the pullback in Netflix’s stock to purchase bullish call contracts in anticipation of a bounce into the end of the week. One trader wanted in quick and paid above ask for 278 contracts valued at $3.47 apiece. The trader chose a strike price of $560, an expiry of this Friday.

For the traders calls to be "in the money," Netflix will need to pop over resistance soon.

The Netflix Chart: Netflix has been trading in a large-range sideways pattern between $463 and its all-time high of $593.95 since July 1, 2020. Within the pattern, Netflix changed trend on June 10 and has made a series of higher highs and higher lows as it progressed from $482 to the $557 area. Thursday’s pullback could be the start of another healthy higher low before Netflix breaks through its upper resistance level.

During the stock’s most recent ascent, it almost filled the big gap left behind after its earnings print but the gap up Netflix made on June 21 left an open area between $520 and $524. Gaps fill 90% of the time and, because the gap is less than 4% from Netflix’s current stock price, a negative reaction to next week’s earnings release could definitely drop the stock back down into the gap.

Netflix is trading above both the eight-day and 21-day exponential moving averages (EMAs) and the eight-day EMA is trending above the 21-day EMA, both of which are bullish signs. Netflix is also trading above the 200-day simple moving average, which indicates overall sentiment in the stock is bullish.

Bulls want to see continued consolidation in Netflix’s stock, under resistance, to allow it to gather enough power for another big push up. If Netflix can clear the $557 area, it has room to trade back up toward all-time highs.

Bears want to see Netflix lose support of the eight-day EMA and for selling pressure to drop the stock down toward support at $531.73. If Netflix were to lose the area as support, it could fall toward the $510 area.