Netflix (NFLX) exhibits a historically bearish setup before earnings, with the stock up 3.3% and short interest down 2.4%. Both trends typically signal a reversal.

The stock tends to reverse at earnings. For example, last time the stock was down 6% before earnings and up 11% afterward (see the blue line). In this case, the stock is up 3.3%, which historically is bearish.

At the same time, the change in short interest is also predictive, and it is down 2.4% this week, which historically corresponds to a negative return (see the red line).

These two patterns are independent and additive. Both are bearish.

NFLX typically moves 9% around earnings, so the average expected move of -5% is significant.

Historically, the stock price is negatively correlated with short interest, meaning it is a momentum strategy where investors cover their positions on the way up.

The graph shows the negative correlation over time, with short interest increasing on the way down and then reversing.

The decrease in short interest and the rise in stock price represent bullish sentiment, but in the context of earnings, this tends to result in a negative outcome.

NFLX’s bullish sentiment, reflected in rising prices and declining short interest, often reverses around earnings. Historical data shows a -5% average expected move, reinforcing a bearish outlook. Independent and additive trends underscore the reliability of this signal.

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