Netflix stock price rally pauses for breath

Netflix was able to beat expectations for its fourth-quarter (Q4) earnings, despite a less impressive performance compared to a year earlier. Again, the 36% rise in streaming revenues was the main driver of gains. It added 8.84 million subscribers for the period, above the forecast and an improvement on the 6.62 million of Q4 2017, driven by international markets.

The results were enough to assuage fears that Netflix’s growth had peaked, and as a result investors have taken a more positive view of the stock. At 47.2 times forward earnings, the stock trades below its five-year average of 53.2. While not cheap, Netflix seems to have done enough to quell growth worries, although its ever-increasing spending on content is still perhaps a cause for concern.

The bullish start to 2019 has started to fall apart, with the February ascent proving laboured and unconvincing. The wider picture seen on the daily chart highlights the creation of lower highs since the mid-2018 peak, with a second 76.4% Fibonacci retracement coming into play over recent months. Coming off the back of a bearish rising wedge breakdown, there is likely to be further downside to run from here. The stochastic is also providing a bearish signal, with a lower low providing a bearish divergence from the price.

The four-hour chart highlights the short-term picture, with lower highs and lower lows in place unless we break through the $362.77 swing high. As long as the price remains below that level, further downside looks likely for the Netflix share price. With the stochastic on the rise, we could see further upside for the near term, yet that would likely be a retracement before we turn lower once more.