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Has Netflix Topped Out?

Netflix Inc. (NFLX) is trading higher by about 1% in Tuesday’s pre-market session after boutique firm Argus upgraded the stock from ‘Hold’ to ‘Buy’.  Even so, the streaming giant has struggled since failing a January breakout near 600, dropping into the 200-day moving average for the first time since the March 2020 decline.  Worse yet, It’s now back to the same level first traded in July 2020, not adding a single point in the last eight months.

Higher Risk Ahead

Some analysts have raised concerns that 2021 will signal high subscriber turnover, a.k.a. ‘churn’, across the streaming video on demand (SVOD) universe as millions of consumers get out of their homes to engage in more activities in the physical world. Churn rose ‘materially’ in Q4 2020 according to Needham analyst Laura Martin and Netflix has a lot to lose if that continues, with no cheaper ad-driven tier to bolster revenue.

But not everyone is bearish on the long-term outlook. Argus analyst Joseph Bonner upgraded Netflix to ‘Buy’ from ‘Hold’ on Tuesday with a $650 price target, noting the company continues to expand globally and add new subscribers, strengthening its SVOD leadership with popular and original content. He thinks the stock “offers a sustainable structural competitive advantage in the streaming video space and the recent selloff represents an appropriate entry point”.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating’, based upon 23 ‘Buy’, 5 ‘Overweight’, 9 ‘Hold’, and 1 ‘Underweight’ recommendation. Four analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $340 to a Street-high $840 while the stock is set to open Tuesday’s session more than $80 below the median $650 target.  This low placement indicates a sharp disconnect with less bullish investor opinion.

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The stock broke out above 2018 resistance above 420 in April 2020 and carved an impressive uptrend into the July peak at 575.37. It failed September, October, and January breakout attempts, carving a persistent trading range with support near 490.  Higher lows in November, January, and March highlight modest buying interest but the 200-day moving average at 494 needs to hold in this mixed configuration, with a breakdown favoring a decline into April breakout support near 425.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

This article was originally posted on FX Empire

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