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Key Takeaways
- Netflix shares tumbled in premarket trading Wednesday after the streaming giant’s third-quarter earnings came in short of Wall Street expectations, with the company citing a charge related to a tax issue in Brazil.
- The stock price looks set to tumble toward the lower trendline of a descending triangle.
- Investors should watch key support levels on the Netflix chart around $1,065 and $942, while also monitoring critical overhead areas near $1,265 and $1,341.
Netflix (NFLX) shares tumbled in premarket trading Wednesday after the streaming giant ‘s third-quarter earnings came in short of Wall Street expectations.
The company posted earnings per share of $5.87, compared with the $6.92 EPS that analysts tracked by Visible Alpha had anticipated. Executives said an unplanned charge tied to an “ongoing dispute with Brazilian tax authorities” weighed on profitability in the quarter. Revenue rose 17% from the year-earlier period to $11.51 billion, in line with analysts’ estimates, and Netflix projected another 17% increase in the fourth quarter, driven by membership growth, pricing adjustments and increased ad revenue.
Netflix shares were down more than 7% at around $1,150 in recent premarket trading. Through yesterday’s close, the stock had risen 40% since the start of the year, far outpacing the 15% gain of the benchmark S&P 500 index over the period.
Below, we take a closer look at the Netflix chart and use technical analysis to identify key price levels that investors will likely be watching.
Descending Triangle in Focus
After hitting their record high in late June, Netflix shares have consolidated within a descending triangle, a bearish chart pattern that signals a potential move lower.
Indeed, the stock looks set to tumble toward the pattern’s lower trendline following the streamer’s weaker-than-expected earnings report, reinforcing a downward bias.
Let’s point out two key support levels to watch on the Netflix chart amid the possibility for further weakness and also identify overhead areas worth monitoring during future recovery efforts.
Key Support Levels to Watch
A decisive volume-backed breakdown below the descending triangle could see the shares initially test a key support level around $1,065. This area on the chart may attract buying interest near the stock’s prominent February swing high.
Further downside could see a more-significant drop to the $942 level. Investors may seek buying opportunities in this location near last December’s peak, which also closely aligns with a series of corresponding price action on the chart between January and April.
It’s worth noting this area also sits in the same neighborhood as a bearish measured move target that calculates the width of the descending triangle near its widest section in points and deducts that amount from the pattern’s lower trendline.
Critical Overhead Areas Worth Monitoring
Recovery efforts in the stock back toward the descending triangle’s upper trendline could see the shares test the $1,265 area. The price may run into overhead resistance at this level near a trendline that connects peaks on the chart in June and September.
Finally, buying above this area could propel a bullish move to around $1,341. Investors who have bought Netflix shares during its consolidation period in recent months may decide to lock in profits around the stock’s all-time high.
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