Netflix (NFLX) gapped higher on Wednesday January 24 in a positive reaction to its latest quarterly earnings report, which included a surge in subscribers. The stock traded as high as $579.64, a level above its semiannual risky level at $558.66. Even when the news is bullish, it’s almost always the time to reduce holdings on strength.
Netflix provides entertainment content with paid members located all over the world. This includes TV shows, films and games.
Netflix has an elevated p/e ratio of 47.94% and does not offer a dividend, according to Macrotrends. The company missed EPS estimates on January 23, 2024 and on January 19, 2023. This followed five consecutive quarters of beating estimates between October 19, 2021, and October 18, 2022.
The Daily Chart for Netflix
The daily chart for Netflix shows that the stock was in a downtrend two years ago. Note the ‘death cross’ as the upper left-hand corner of the chart. A ‘death cross’ occurs when the 50-day simple moving average (in blue) declines below the 200-day simple moving average (in green). This led to the May 12, 2022 low of $162.71.
A ‘golden cross’ buy signal occurred on November 25, 2022 when the 50-day SMA rose above the 200-day SMA. The close on this day was $285,54. The signal is still at play today. Another buy signal occurred on October 6, 2023 when the 200-day SMA was tested at $371.37.
The horizontal line at the top right-hand corner of the chart is the semiannual pivot at $558.66, the level at which to reduce holdings.
The Weekly Chart for Netflix
The weekly chart for Netflix is positive but overbought with the stock above its five-week modified moving average at $507.35. The 200-week simple moving average or ‘reversion to the mean’ is at $426.56. The 12x3x3 weekly slow stochastic reading is rising at 87.52, but it’s well above the overbought threshold at 80.00. A reading above 90.00 would be a reason to reduce holdings.
Trading Strategy: Buy weakness to the ‘reversion to the mean’ at $426.56. Reduce holdings on strength to the annual risky level at $623.13.