While technical analysis has many benefits, charts can't help one predict a company's financials. Thus, we never recommend chart-based trades for stocks that are within a week or two of reporting earnings. However, that does not mean we should ignore the technicals.
In fact, the period just before and just after a stock reports is a perfect time to review the relevant patterns and levels. We're going to do just that today for Netflix (NFLX) , Meta (META) and Alphabet (GOOGL) , the biggest components of the S & P 500's communication services sector. While the biggest bank stocks historically kick off earnings season, traders have an eye on the first large cap growth stock to release numbers.
And that's always Netflix . NFLX's report, and, more importantly, the reaction to said report, often sets the tone for what's in store for mega cap growth names, many of which release numbers later in the earnings season. NFLX had a strong report last Thursday, the market rewarded it with a huge 11% gain the following day.
The stock gapped higher (at $736) and continued to advance before closing all the way up at $764. For holders of NFLX, that's great. For those wanting to buy it, but not wanting to chase it, it's an extremely challenging scenario.
One strategy that's worked well for NFLX over the last year is paying attention to how the stock behaves vis-à-vis its earnings-induced gaps. It's had noticeable gaps post earnings in three of the last four quarters before this one – Two up.