Streaming entertainment giant Netflix (NASDAQ:) is scheduled to report its fourth-quarter 2021 earnings after the bell today. Analysts are forecasting earnings per share of $0.84 from last year's $1.36 on $7.71 billion in revenue, $7.48 billion year over year.
After the company's record in 2021, with NFLX shares closing at a record high of $691.69 on Nov. 17, the stock's recent decline amid the Fed's ongoing monetary policy restructuring the valuation of the share too expensive. In addition, the company also faces increasing competition from a variety of peer streaming services that could seriously undermine customer growth, which had already dwindled in the first half of 2021.
Given the most recent pressure on the company, its shares have fallen. The stock entered a bear market on Jan. 7, closing more than 20% from its record set on Nov. 17. As of Wednesday's close, it is 25.4% lower than its high.
And ominously, ahead of today's report, the development of the pattern could point to more sell-offs in the future.
The stock plunges for the third week in a row, approaching the same low as in September. When both the highs and lows of an asset's price fail to reach higher highs and higher lows, it is a clear sign of weakness. The current pattern development, following the principles of technical analysis, is an H&S top on the weekly chart – and a huge one, dating back to July 2021.
The price has found support at the 100 WMA after dropping below the 50 WMA. NFLX could bounce off the supposed neckline to form the right shoulder and still prolong the decline in the coming weeks or even months.
On the other hand, the stock could also continue to fall now. Although, after such a sharp drop, it is more likely to vary in the formation of the rest of the potential H&S top. a decisive penetration of the slightly rising trendline that forms the potential neckline before shorting.
Moderate traders would shortfall returns to $600 with proof of delivery.
Aggressive traders can take a long, contrarian position, counting on a rebound from the neckline, before joining moderate traders with a short position. Money management is key. Here's an example:
Trading example – Aggressive long position
Admission: $505
Stop Loss: $495
Risk: $10
Target: $555
Reward; $50
Risk Reward Ratio: 1:5
Author's Note: We are not in divination and cannot predict the future. Instead, we use technical analysis to form a forecast based on our interpretation of historical data. Trading is nothing more than 'lucky management', where traders try to put the stats to the side for overall profitability, not necessarily of an individual trade. To be successful in trading, one must learn to draw a plan that is specific to one's budget, timing and temperament. Until a novice trader knows how to do that, follow our examples for educational purposes, not for profit initially. Otherwise losses could follow. Guaranteed. And there is no refund.
