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Netflix share price forecast for February: price broke out and is poised to move higher

By David Becker

Are technicals are pointing to higher prices?

The Netflix stock price broke out and is poised to move higher, despite mixed guidance from the company when Netflix reported financial results on January 21, 2020. Netflix is also facing stiff competition from new streaming competitors as Disney+ and AppleTv+ who have entered into the streaming wars.

Another factor which could impact the Netflix share price is the rally in US equities as the coronavirus spread throughout China, forcing global investors into safe-haven assets such as dollar-denominated securities. There is a windfall of capital that is moving into US assets which could propel Netflix to overhead resistance. Let’s analyse these factors.

The guidance caught investors off guard

Despite reporting better than expected financial results, Netflix shares whipsawed in the face of potentially lower future earnings. The company reported earnings on January 21 and warned that subscriber growth could decline in 2020 from 20 per cent to 17 per cent. The better than expected earnings were largely due to an unexpectedly light tax bill, because of new Treasury Department guidance on the 2017 tax cuts.

Netflix share price technical analysis

The weekly chart of Netflix shows that prices are in an uptrend. The 10-day moving average recently crosses above the 50-week moving average which shows that a medium-term uptrend is now in place. Prices broke out this week from a downward sloping trend line that connects the highs in July 2018 to the highs in July 2019 and comes in near $360. This is now seen as short term support. Additional support is seen near the 10-week moving average at $340. Target resistance is seen near the June 2018 highs at 424.

Medium-term weekly momentum is positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices. The RSI (relative strength index) which is a momentum oscillator, continues to grind higher and poised to test the overbought trigger level of 70. This upward movement in the RSI in conjunction with price action confirms the breakout. Short term momentum is positive to neutral. The fast stochastic generated a crossover buy signal in overbought territory. The current reading on the fast stochastic is 90, well above the overbought trigger level of 80, which could foreshadow a correction.

The daily chart of Netflix shows that the stock price is forming a cup and handle continuation pattern which is a pause that refreshes higher. Short term momentum has turned positive as the fast stochastic generated a crossover buy signal in overbought territory. The RSI is also moving higher with an upward sloping trajectory which points to accelerating positive momentum. The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

Netflix share price trend: takeaway

Price action should dictate the movement of Netflix. Despite the potential for lower subscriber growth, the breakout in price action will likely lead to a test of the June 2018 highs at 424. Positive momentum and an RSI that can continue to rise above 70, should lead to a continued trend toward target resistance.

FURTHER READING: Netflix warns of tougher competition in 2020

FURTHER READING: Netflix share price forecast for 2020 and beyond

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