Netflix, Inc. (NFLX) has emerged from the March sell-off in excellent technical shape and could beat modest estimates when it reports first quarter 2020 earnings on April 21. The stock has received surprisingly few upgrades this year, even though Netflix now has a worldwide captive audience forced to stay at home due to the pandemic. Many of these folks have resisted the charms of streaming entertainment up to this point, providing a new income stream for Netflix despite the recent addition of The Walt Disney Company's (DIS) Disney+ and other competing services.

Netflix stock underperformed between 2018 and the first quarter of 2020, with market saturation slowing U.S. subscriber growth. The fourth quarter 2019 report in January 2020 eased investor concerns, beating growth estimates by a wide margin, but the company lowered first quarter 2020 guidance from 8.8 million to 7.6 million new subscribers. That number seems easy to beat, given events around the world since January.

Even so, the company faces a creative threat because production has been shut down and no one knows when it will come back to life. However, the typical Netflix subscriber taps just a small slice of the company's vast library, allowing them to discover a plethora of new content to feast upon until shutdown orders are lifted. This depth provides a key advantage in the company's battle with Disney+ because the new service hasn't had time to build much content beyond Disney's movie catalog.

NFLX Long-Term Cart (2002 – 2020)

Long-term chart showing the share price performance of Netflix, Inc. (NFLX)
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A May 2002 initial public offering (IPO) opened at a split-adjusted $1.16, yielding an immediate decline that posted an all-time low at 44 cents in October, The subsequent advance reached new highs in March 2003, generating a strong uptrend that topped out at $5.68 in 2004. A 2009 breakout attracted steady buying interest, triggering a momentum-fueled uptrend that ended in the mid-$40s in 2011. A steep decline relinquished more than 80% into 2012, finally ending on top of the breakout level. 

The subsequent bounce completed a 100% retracement into the 2011 high in 2013, yielding a breakout that added few points until a brief 2015 buying spike ended near $130 in August. The subsequent downturn found support in the $80s in 2016, giving way to another breakout after the presidential election. The stock posted impressive gains into June 2018's all-time high at $423 and sold off once again, finding support at $231 at year end.

The monthly stochastic oscillator entered a buy cycle from the oversold level in March 2019, predicting at least six to nine months of relative strength. The indicator reached the overbought zone in February 2020 and has crossed over but not dropped through the 80% line. This raises a red flag but no sell signal, warning that the stock could reverse at resistance in the next few weeks. Bulls need to defend the $350 level if that happens or risk additional downside into the March low.

NFLX Short-Term Chart (2018 – 2020)

Short-term chart showing the share price performance of Netflix, Inc. (NFLX)
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The price pattern in the past 16 months has been range bound between the 2018 high and low, with two higher lows and a wall of horizontal resistance near $390. The February 2020 slide started near that level, while the V-shaped bounce into April has reached within seven points of the barrier. This two-sided action is constructive but inconclusive because accumulation, as measured by the on-balance volume (OBV) accumulation-distribution indicator, is slumping well below the February peak.

The Bottom Line

Netflix stock has rallied to resistance after a strong recovery wave off the March low and could beat estimates when it reports first quarter earnings on April 21.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.