Video streaming giant Netflix, Inc. (NFLX) was a strong momentum stock in 2017, but technical mojo has been declining since Nov. 24. This morning, we learned that Netflix will award key executives with higher salaries and stock options due to the company's benefits from the tax reform legislation to be implemented as 2018 begins.
Netflix is projected to spend $7 billion to $8 billion on exclusive content in 2018, including 80 original movies. To continue this surge, the key to 2018 quarterly earnings reports will be subscriber growth. The competition in 2018 includes Amazon.com, Inc. (AMZN), Apple Inc. (AAPL) and The Walt Disney Company (DIS) – it's thus a game of bean-counting eyeballs.
Netflix stock closed Thursday at $192.71, up 55.7% year to date and in bull market territory at 55% above its 52-week low of $124.31 set on Jan. 3. The stock set its all-time intraday high of $204.38 on Oct. 17 and is 5.7% below this level. Shares of Netflix were above $194.00 in pre-market trading this morning. (See also: Netflix on Track for Q4 Beat: Piper Jaffray.)
Here's how the numbers worked in 2017
Netflix shares closed 2016 at $123.80, and my annual value level for 2017 at $111.17 was never tested on weakness. At mid-year, the stock closed at $149.41, and my semiannual risky level of $175.57 became my upside target, which was first tested on July 18. A price gap above this level followed a positive reaction to earnings reported after the close on July 17. The $175.57 pivot (or magnet) was tested several times until Sept. 6, when the stock began its final leg up. On Nov. 30, I showed a monthly risky level for December at $201.97 versus the all-time high of $204.38 set on Oct. 17, suggesting that Netflix had seen its high for 2017.
The daily chart for Netflix
Netflix stock has been above a "golden cross" since Oct. 12, 2016, when it 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 horizontal lines show the semiannual pivot of $175.57 and the monthly risky level for December at $201.97. (See also: Netflix Stock Breaks Out Amid Giant Disney-Fox Deal.)
The weekly chart for Netflix
The weekly chart for Netflix is neutral, with the stock just above its five-week modified moving average of $191.01. The stock is well above its 200-week simple moving average at $106.38, which is also the "reversion to the mean" last tested during the week of Jan. 25, 2013, when the average was $13.29. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week sliding to 52.91, down from 54.04 on Dec. 22. A close today below $191.01 will result in a negative weekly chart.
Given these charts and analysis, it appears that Netflix will begin 2018 below a new semiannual risky level of $217.96. This configuration provides a warning to reduce holdings by 25% over the next two trading days. (For additional reading, check out: Netflix Signs Massive Exclusive Deal With 'Stranger Things' Producer.)