How To Trade Disappointing Earnings in Netflix (NFLX)

Netflix (NFLX) has been one of the hottest stocks since the market’s December low.

Last night it announced its quarterly earnings and traders were disappointed.

The disappointment selloff in NFLX did traders a big favor.

While it would have been more exciting to see NFLX gap higher and run, that would not have provided the great trading inflection point that today’s low will create.

The simple way to trade NFLX going forward is to wait until Monday.

Today’s low will establish a multi-day range low with the range high being the $358.85 high set on January 16th.

For the next several weeks, if NFLX is trading below that low it’s bearish. If it trades above $359 then it’s bullish.

If you trade either breakout, the best stop is at the opposite side of the range.

Personally, I would not short it. I’d look for an opportunity to be a buyer if the high of the range is taken out.

It’s very important to understand that I’m not interested in buying unless $359 is broken to the upside because that would represent the stock trading higher despite a disappointing reaction to earnings.

A move higher represents “bad news, good action” which is bullish.

However, until $359 is broken, it’s not as easy to tell how bad the news really is in the minds of the big institutional bulls that drive the stock’s major move.

If the 359 level it taken out today, then yes, bulls could enter today with a stop under today’s low. In this case today’s high would be both the high and the low of the range to use for trading it going forward.

If you want to be more conservative, let today’s range form and start looking at it on Monday.

Trade smart,

Rick Nartarian, Chief Investment Officer
The American Investor Daily