Shares of video streaming giant Netflix, Inc. (NFLX) have posted a year-to-date gain of 106.2%, but with a P/E ratio of 265.64, a downgrade by UBS and cautious comments by Deutsche Bank, the stock closed Friday at $395.80, which is 6.5% below its all-time intraday high of $423.20 set on June 21.

Analysts expect Netflix to report earnings per share of 80 cents when the company releases second quarter earnings results after the closing bell on Monday, July 16. The media giant should continue to see subscriber growth, particularly globally, but warnings from UBS and Deutsche Bank indicate that there is significant downside risk on a negative reaction to earnings. Perhaps a positive reaction to earnings will be an opportunity to reduce holdings, particularly if guidance is not pointing to continued subscription growth. (See also: Netflix: UBS Downgrades Over High Valuation.)

The daily chart for Netflix

Daily technical chart showing the performance of Netflix, Inc. (NFLX) stockCourtesy of MetaStock Xenith

Netflix has been above a "golden cross" since Oct. 12, 2016, when the stock closed at $99.50. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead. The 50-day and 200-day simple moving averages are now at $367.84 and $273.78, respectively. The horizontal lines show my annual value level of $163.62, my semiannual value of $291.64, my quarterly value level of $346.54 and my monthly pivot of $399.90, with my weekly risky level above the chart at $430.64.

The weekly chart for Netflix

Weekly technical chart showing the performance of Netflix, Inc. (NFLX) stockCourtesy of MetaStock Xenith

The weekly chart for Netflix is positive but overbought, with the stock above its five-week modified moving average of $378.52. The stock is well above its 200-week simple moving average at $142.29, which is also the "reversion to the mean," last tested during the week of Jan. 25, 2013, when the average was $16.28. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 86.13, slipping from 88.55 on July 6, which is well above the overbought threshold of 80.00. When the stock set its all-time high of $423.20 on June 21, the stochastic reading was above 90.00, indicating that the weekly chart was showing the stock in an "inflating parabolic bubble," which is a warning for the stock in case of a negative reaction to earnings.

Given these charts and analysis, traders should buy Netflix shares on weakness to my quarterly value level of $346.54 and reduce holdings on strength to this week's risky level of $430.64. My monthly pivot of $399.90 should be a magnet. (For additional reading, check out: Netflix Has 'Insurmountable' Lead: Credit Suisse.)

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