What Will It Take For Netflix Stock To Break From This Pattern?

Netflix, Inc NFLX was trading slightly lower on Thursday in sympathy with the S&P 500, which was falling by nearly 1.5% in midday trading.

On Wednesday, Microsoft Corporation MSFT confirmed reports it was working with the streaming giant for ad-supported services. "We’re thrilled Netflix has selected Microsoft as its advertising technology and sales partner. We want publishers to have more long-term viable ad monetization platforms, so more people can access the content they love wherever they are," Microsoft CEO Satya Nadella said on Twitter.

Despite the news, BMO Capital analyst Daniel Salmon lowered the price target on Netflix from $405 to $365. The new price target comes two days after Morgan Stanley analyst Ben Swinburne lowered the price target from $300 to $220.

Even the lowest of the new price targets suggests about 26% upside for Netflix.

Netflix is expected to print its second-quarter financial results on July 19 and the reaction to its earnings will likely determine the direction in which the stock is trading. Netflix has been stuck in a horizontal pattern since April 21, the day after reporting its first-quarter earnings.

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The Netflix Chart: Netflix has been trading in its horizontal pattern between $164.28 and $227.68 for three months, with most of the price action taking place under the $200 level. The sideways price action has been taking place on fairly consistent low volume, which indicates there is a lack of interest in the stock.

Slight bullish divergence has developed on Netflix’s chart, which indicates the stock may trade higher within its horizontal pattern over the next few days. Bullish divergence occurs when a stock makes a series of lower lows but its relative strength index makes a series of higher lows.
Netflix has two gaps on its chart, with the first gap falling between $248.70 and $333.22. Gaps on charts fill about 90% of the time, which makes it likely Netflix will rise up to fill the empty trading range in the future, although there could be a significant amount of time before that happens.
On Thursday, Netflix was trading in an inside bar pattern, with all of the price action taking place within Wednesday’s range. Traders and investors can watch for a break up or down from Wednesday’s mother bar on higher-than-average volume to indicate the stock’s future direction.
Netflix has resistance above at $178.38 and $186.40 and support below at $164.28 and $163.55.