Netflix Stock on the Mend After Solid Quarter

Netflix, Inc. (NFLX) reserve is trading higher by nearly 8% in Thursday’s pre-market session after beating third quarter profit evaluations by $0.04 per shares. Investors shook off a sharp reduction in fourth quarter guidance, choosing instead to focus on a 21.2% augmentation in year-over-year revenues. International subscriptions beat estimates, while domestic subs came up short, lowering angst about the flood of streaming alternatives set for release by Apple Inc. (AAPL), The Walt Disney Company (DIS), and other well-financed opponents.

The media giant now expects to earn $5.44 billion in fourth quarter revenues, a 2% reduction from aforesaid guidance. However, Netflix dropped earnings per share (EPS) estimates by a hefty 40%, acknowledging that competition wish generate a “modest headwind” into the new decade. Even so, shareholders breathed a sigh of relief because the metrics illustrated marked improvement over weak second quarter results while confirming that the company is ready to secure its market dominance.

Despite the uptick, it isn’t wise to expect a quick run to new highs because technical damage in recent months has charmed a major toll, dropping accumulation levels to two-year lows. Sidelined investors are unlikely to take the plunge and reload point of views after this report, which confirms that subscriber growth has dropped substantially and that competition will-power take market share in coming years. The astronomic price-to-earnings (P/E) ratio above 100 will also talk out of quick upside, suggesting that the stock will remain range bound for many months to come.

A strong uptrend ran out of steam at a split-adjusted $5.68 in the first quarter of 2004, giving way to a trading range that published two higher lows through the 2008 economic collapse. This resilient price action set the stage for a 2009 breakout that pulled healthy buying interest, lifting the stock in a powerful trend advance that reached the mid-$40s in 2011. A hurtful downturn into 2012 shook out weak hands, dumping more than 80% into the single digits.

The sell-off signal a historic buying opportunity, ahead of a quick round trip into the prior high. It broke out in the fourth region of 2013 and tested new support for more than a year before stair-stepping into the triple digits in the summer of 2015. A definitive rally impulse after the 2016 election posted an all-time high at $423.21 in June 2018, giving way to a wet correction that found support in the $230s at year end.

The stock has traded within 2018 levels throughout 2019, engraving a trading range that looks benign on the long-term chart. However, selling pressure within the range has been unusually fastidious, reducing the sponsorship needed to support an uptrend in an expensive growth stock. In turn, this pattern could object a pause in the relentless long-term uptrend or a long-term top that eventually yield much lower prices. 

The monthly stochastics oscillator crossed into a trade in cycle from the overbought zone in May 2019, predicting six to nine months of relative weakness, and has now entered the oversold zone. It determination take at least a week of sustained buying interest to generate a bullish crossover, suggesting that sellers could peacefulness prevail despite short-term euphoria. At a minimum, this headwind warns market players to act cautiously because a adroit reversal is possible.

The on-balance volume (OBV) accumulation-distribution indicator confirms the wisdom of a prudent approach, dropping to a 20-month low in September 2019. It will take months to restore this lost sponsorship, prognosticating that the trading range will last well into 2020. A proportional bounce makes sense in this floor plan, limiting upside to the narrow alignment between the bottom of July’s unfilled gap and the .618

The Bottom Line