Technical Analysis: Why NFLX fell after earnings Report

In this post, I would like to dissect technically why NFLX fell after earnings report and where it is headed in the coming weeks.

NFLX gave earnings on October 20. In the week of October7, we recommended a spread play on NFLX when the stock was at 525 for week of October 23. Within 2 days, the stock started rising and on October 14, we saw the price reaching 572. We sold our spread on that day. Later that day, we saw the price of NFLX falling below the flat line resistance of 547.58 and closing below that line. Rest of the week, we saw NFLX stay below that flat line resistance. As shown in the chart, next support for NFLX was at 509. When price closes below the flat line resistance for more than 2 days, it indicates that it wants to get to the next support. On 10/19, we saw the price also moving below the MA 10 and Ichimoku conversion line indicating it is no longer bullish short term.

Also, on the weekly chart, when we drew the gann fan, it has touched the 1:1 line and was retracing back.

Usually, when the stocks make a big move like NFLX, they give up 80 percent of the gains and settle down at 23.6% (25% Gann equivalent) fibonacci retracement line. That is exactly what happened with NFLX. If you look at the daily chart, the next flat line support is around 477 which NFLX has not touched yet. We might see NFLX make a move to 509 and may retrace back to 477 before touching the Ichimoku baseline at 515.54

What could be some of the lessons learnt from this NFLX chart?

1. Keep watching for the flat line resistance and supports to see if it is indeed closing higher and staying there for 2 days on the daily chart for a bullish move

2. Use Gann fans on the weekly charts to see if there is enough room for the stock to go up.

3. Use Moving averages to determine the short term trends ( MA10).

So where is NFLX heading now?As mentioned earlier, after touching 477, it can head to 620 which is 161.8 % (162.5 Gann equivalent) fibonacci level (Golden Ratio) in another 7-8 weeks as shown in the chart with fibonacci time zones. The best way to play them is to buy a leap call covering next earnings. for example Feb 21 550 calls. I have displayed below on the weekly chart. Look in the chart where the gann fan 45 degree angle is intersecting with the fibonacci level of 162.5 and that can happen from 7-8 weeks from now.

All charts shown here use TC2000. If you are an options trader, click here to learn about our option subscription services.