Trading Nation

This could be the catalyst Netflix needs to break out of its 7-month range

This could be the catalyst Netflix needs to break out of its 7-month range

Green might be the new black.

After a tough 2019 for shares of Netflix, which saw a meager 4% gain over the last six months versus the S&P 500's 15% move, the streaming giant is now poised for a major boost, according to two market watchers.

With Netflix's second-quarter earnings report coming after Wednesday's closing bell, any positive or better-than-expected outcome could be the catalyst the stock needs to break out of its monthslong trading range, says Matt Maley, chief equity strategist at Miller Tabak.

"It's been in this sideways range for almost seven months now. And whenever any stock gets stuck in a range for a while, once it finally breaks out of that range, it usually sees a powerful move," he said Tuesday on CNBC's "Trading Nation." "This earnings report could be the catalyst that finally takes it out of that range."

A move above the top end of the range, the $385 level, would be "quite bullish," Maley said. But if Netflix's second-quarter results don't meet expectations, the stock could break down below $340, coincidentally the same level as Netflix's 200-day moving average, he said.

"A break below that's going to be quite bearish," Maley said. "You have to wait to see which way it breaks out of the range before you can really make a definitive call. And right now, that's where we are. So, the next few days could be very important for this name."

Netflix shares were slightly lower at $365.78 in early trading Wednesday.

Mark Tepper, president and CEO of Strategic Wealth Partners, said his firm still owned Netflix for its strong position in the streaming space.

"We continue to love the long-term growth story," Tepper said in the same "Trading Nation" interview. "Streaming's not a winner-take-all space. There's opportunity for several companies to win. The losers are going to be the cable providers. And when it comes to streaming, Netflix still has that first-mover advantage."

Tepper cited Netflix's record viewership numbers for its third season of "Stranger Things," as well as its recent original projects involving high-profile Hollywood talent.

Now, with earnings on deck, "there's three main things that are on our radar," he said. "No. 1, obviously, subscriber additions. Last quarter was a bit slower, but they had that price increase. So, guidance is for 300,000 U.S. additions [and] 4.7 million international additions."

The next item on Tepper's list was Netflix's third-quarter guidance, particularly for what he called "a really strong slate of content" the company is planning to release.

"Third thing [is] we really need to hear that their projected free cash flow burn is either reaffirmed — it's staying steady — or that it's actually improving," Tepper said. "Last quarter, it ticked up from 3 billion to 3.5 billion, and the market didn't like that. So, if it ticks up again, you'll see this thing sell off. So, we either want to see it stay where it's at or come down, and obviously we want to see it trend toward zero, with a goal of positive free cash flow by 2021."

The stock is up nearly 37% year to date.

Disclosure: Strategic Wealth Partners owns shares of Netflix.