Netflix Could Be Setting Up for a Big Show, But I’m Not Convinced the Move Will Be Up. Here’s Why.

Many of us have learned more about the Strait of Hormuz in the past month than we ever expected to learn in a decade. It is a necessary part of comprehending the current stock market environment. 

And seeing the market wax and wane based on every hint of news (real or fake) from the war zone, it reminds me of an enduring truth about investing: No matter how much we wish it could be, the stock market is not for the perfectionists. Or as one of my favorite expressions goes, “Don’t let perfect be the enemy of good.”

That brings me to Netflix (NFLX), which, along with Amazon (AMZN), seems to run my life. I guess we can throw in Apple (AAPL) and Alphabet’s (GOOG) (GOOGL) Google, plus a few others. But NFLX, in stock form, is creating some of the strangest technical setups I’ve seen recently. 

And that allows me to bring to you a very pointed example of why, no matter what our biases and preferences might be, there’s no such thing as “will” or “won’t” in stock investing. There is, however, “might” or even “probably.”

That’s why I created the ROAR score, which I reference here often, as it, too, runs my life. My investment life, that is. But since this is investing, there are times when I look at my own automated chart-reading system, the one I created, and think to myself, “No, I don’t think so!” More on that in a moment.

Here’s NFLX on a daily chart view. It has been all over the map. And that makes any type of technical analysis less confident. The 20-day moving average has changed direction more than a dozen times in the past 12 months. My friends, that is not normal. That’s wack (technical term). It also has a PPO indicator that can only be described as a “hangman” pattern.

Here’s the monthly view below. It uses 15 years of data, but does not inspire a bullish view from me. One reason: the 20-month moving average is a few months into a negative trend. That’s the first time it has pointed in that direction since 2022. That led to a 70% decline in NFLX stock.

Now, back to the ROAR score analysis, which you see below. It was at 70 as of Wednesday’s close. That makes it one of a very slim set of stocks in the “green zone,” implying lower-than-normal risk of major loss. But when a stock flops around like this one, the 45-year technician in me takes all analysis with a grain of salt. Maybe two grains in this case.

This is not new for NFLX, given its volatile price pattern, brought on by several newsworthy tilts. The company serves as a classic example of how a dominant player can lose its way in the pursuit of transformative deals, only to find its footing again by returning to its core strengths. 

The current story for NFLX is one of discipline over desperation. The stock spent much of the past six months in a difficult 22% decline as investors fretted over a potential acquisition of Warner Bros Discovery. That overhang vanished recently when Netflix walked away from the deal, refusing to match a higher bid from Paramount Skydance (PSKY).

The market's reaction to this decision has been a decisive sigh of relief. By dropping the pursuit, Netflix avoided stretching its balance sheet and instead signaled a return to financial discipline. Netflix is now entering a new phase of organic growth, centered on three specific levers: advertising, live sports, and pricing power. 

Netflix has decoupled slightly from the pack by moving away from M&A drama and back toward operational execution. Until the upcoming April 16 earnings report validates these new ad-revenue targets, the stock remains a battlefield between those betting on a new platform era and those wary of its premium multiple.

Why the ROAR Score for NFLX Is Still Not High Enough for Me to Buy It Here

And that makes this one of the minority of cases in which I look at a 70 ROAR score and am thankful I did not create just another buy-sell system. There are plenty of good ones out there, and I felt the world did not need another one.

The key to NFLX from a ROAR standpoint is what a 70 score means. It estimates, based on the chart mechanics, that the stock has a stronger chance of appreciating meaningfully (think 10% to 15%) than falling from this level by about that amount. 

ROAR did a fine job of identifying that NFLX was dealing with some stock price headwinds over the past six months. It has patrolled that red, or higher-risk, zone throughout most of the October to February period, which saw NFLX stock fall by 40%. But when markets get whippy and news-dominated like this, I think all bets are off.

This is all part of prioritizing risk management. I don’t have to swing at every pitch, and I’m not swinging at this one. Too crazy, too in flux, too slippery in chart terms. This is one of those times, rare as they tend to be, where I look at a ROAR score of 70 and say, “I’m focusing on the 30% chance it goes lower, not the 70% chance it goes higher.” And I am very happy to be off-base, since there are many other fish in this sea.

Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob's written research, check out ETFYourself.com.