Netflix (NASDAQ:) stock crashed yesterday, falling 14%, to $343.89 in after-hours trade. The video streaming giant disappointed investors on perhaps its most critical metric during Monday's earnings call, which took place after the market closed.
Netflix added 670,000 US subscribers in the second quarter, just over half the 1.23 million new customers they had forecast in April. The respective overseas figure also came in lower, 500,000 units below April's guidance. In total, Netflix added 5.2 million users last quarter. That's 1 million fewer than the company's own target.
Still, new subscriber numbers didn't fall relative to the previous quarter. They merely remained steady. As well, Netflix's still exceeded analyst expectations. The company reported a profit of US$384.3 million, or 85 cents per share. The average analyst estimate, according to Zacks Investment Research, was for EPS of 80 cents.
However, benchmarked against the company's internal, ambitious goal, after the report investors suddenly thought the stock looked overpriced.
Netflix Daily Chart
The stock's dive was more than double the 6.3 percent plunge it suffered on June 25 after reports of a crackdown on Chinese investments in US tech firms. While that marked the most significant drop in almost two years during regular trade, yesterday’s selloff shaved off more than $10 billion from the company's market capitalization.
While the stock slipped below its uptrend line since the beginning of the year, it still found support at $343.89 (red line) above the March and April peaks, as well as the 100 DMA. That's nearly double where Netflix shares started at the beginning of 2018. Might this be a buying opportunity?
Trading Strategies – Long Position Setup
Conservative traders would likely wait for a new peak above the June 21, $423.21 high, to confirm the uptrend before committing to a position.
Moderate traders may join in if the price returns above the uptrend line, at $370, per the current angle.
Aggressive traders may risk a position, should the price demonstrate support, with at least one long green candle above the March and April peaks.
Very-Aggressive traders may “jump in” after establishing an entry and exit point that would provide them with a minimum risk-reward ratio of 1:3.
Trade Example
- Entry: $360
- Stop-loss: $350 (psychological round-number) Risk: $10
- Target: $400 (psychological round-number) Reward: $40
- Risk-Reward Ratio: 1:4
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