NFLX Pre Earnings Run

1/17/2019

It's the most wonderful time of the year! Yes Christmas just wrapped up last month and I'm not talking about that. I am talking about the gift that comes 4 times a year. EARNINGS SEASON! We are going to take a look at Netflix (Ticker Symbol: NFLX).

The setup:

What does the chart say?
Backtest the trade using the following info:
1. Open the position 14 days before earnings
2. Close the position the day of earnings. (NFLX reports after the market close)
Determine if we take the trade or not.

The Chart

What's the chart say? To start, the last wave low to high shows we just completed to the 1.272. We can also see that the timing was complete when we hit the 1.272 level. Now we take the last swing high to low and we see we are currently at the golden ratio of 61.8. So a nice bounce off the low and where do we go from here? Ideally I like to wait for us to get above the 78.6 level ($284.28) but with the backtested data that I'm about to show, I went ahead and entered the trade.

Backtest Info

Here are the last two years doing this trade. 8 trades and only 3 losses. A total profit of $2,445. But what if we could use other technicals to trim the losses? Would it help? What about at the key fibonacci levels? Should we wait to see if it could clear the 78.6 like I mentioned above? First let's see the opening trade 14 days before earnings. I purchased a $285 call for $11.00 each.

The next day...

So here we are above the 78.6 level the very next day! Here is where I would load up and try to take this to the next target, 127.2. Above, I mentioned what about another technical? Let's add the 50 day exponential moving average to the chart and let's only take the trade if NFLX is trading over the 50 day EMA.

So now over the last two years, NFLX has only been over the 50 day EMA when this trade takes place. No losses and a $1,685 winner! So of course I had to buy more. So now I own 285 and 300 calls.

What's next?

We need target levels but let's also look at a tool that was made for members to show us stats regarding NFLX when it crosses above the 50 EMA. Let's take a look and I'll explain what it all means.

We have the 1.272 extension level that was hit the next day. Then it consolidated 3 days after that. We didn't hit any timing levels yet until we reached the next 1.618 level. That's all fine and dandy but what about the 50 EMA? What does this info tell us? Over the last 2 years when NFLX is over the 50 days EMA it usually last on average of 9.4%/$32.98/19 bars. So can we hold NFLX longer into earnings? Based on this information, I think it would certainly be ok.