Why Netflix Stock Looks Set To Bounce Higher Despite Weakening Revenues, Job Cuts

Zinger Key Points
  • Netflix has developed bullish divergence on the daily chart, which indicates a larger bounce is likely.
  • Netflix has resistance above at $186.40 and $200.82 and support below at $178.38 and $164.28.

Netflix, Inc NFLX was trading slightly higher in the premarket on Friday after closing Thursday’s trading session up a modest 1.58% compared to the S&P 500, which closed up .95% higher.

On Thursday, Netflix cut 300 more employees from several divisions of its company, mostly in the U.S. amid slowed revenue growth.

When the streaming giant printed its first-quarter financial results on April 19, Netflix reported its first subscriber loss in over 10 years, with a loss of 200,000 subscribers.

Big technology companies have begun to cut jobs and freeze hiring as inflation soars and the U.S. heads toward a recession. On Tuesday, Tesla Inc TSLA CEO Elon Musk confirmed the EV giant will slash its salaried employees by 10% over the next three months in favor of growing its hourly-paid workforce.

In September 2021, Benzinga conducted a poll to ask how many of its followers paid for three or more streaming services, with 53.4% of respondents indicating that they did. The number of streaming services people subscribe to has likely dropped from when COVID-19 stay-at-home orders were in effect and Netflix may not have made the cut for some.

Netflix is expected to print its second-quarter earnings on July 19 and traders and investors will be watching to see whether the worst is over for the company or if it’s continued to lose subscribers. With the population likely finding they have less time to stream after returning to the office and less disposable income caused by soaring inflation, traders will likely prepare for the worst.

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The Netflix Chart: On Thursday, Netflix printed a bullish engulfing candlestick on the daily chart, which indicates the stock is likely to trade higher on Friday. If Netflix does trade higher, bullish traders will want to see the stock receive momentum to the upside in order to rise above the $183.85 mark, which would then confirm the stock is trading in an uptrend.

  • For now, Netflix is trading in a sideways pattern between 164.28 and $183.85, with most of the price action taking place on average or lower-than-average volume. This indicates there is a moderate or lower than usual amount of interest in the stock.
  • Netflix is likely to bounce up higher over the coming days if the stock can break up from the sideways trading channel because exaggerated bullish divergence has occurred on its chart. Exaggerated bullish divergence happens when a stock trades sideways but its relative strength index (RSI) makes a series of higher lows. In order for the divergence to correct, Netflix will need to rise substantially higher or plummet so that the RSI trends downwards.
  • Netflix has resistance above at $186.40 and $200.82 and support below at $178.38 and $164.28.
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