Summary
- Netflix slumps 10% after a $610m tax settlement with Brazil hits quarterly profit by $400m.
- Tesla drops 4.5% as rising costs offset record vehicle sales in Q3.
- Trader focus shifts to next week’s Magnificent Seven earnings, with AI-related revenue and spending under scrutiny.
Netflix and Tesla Q3 results disappoint adding to trader earnings angst ahead of the bulk of Magnificent seven reporting next week.
What’s driving the volatility this earnings season?
US Q3 corporate earnings season has started with a bang. Last week strong results from the major US banks were overshadowed by comments from Jamie Dimon, head of the financial services powerhouse JP Morgan when he discussed issues related to private credit, which preceded a brief sell off in banking stocks when 2 US regional banks flagged issues related to bad loans. The sentiment wobble was brief but did highlight trader sensitivity to earnings in this current environment.
Can Netflix hold key support or is more downside ahead?
Since reaching a record high on July 1st at 134695, the Netflix share price has been trading in a sideways range between a low from August 6th at 114126 and a high of 126622 from September 5th (see chart above). The drop in the last 2 days has seen it close below those range lows at 114126, opening the possibility of further downside towards the next potential key support at 110291, which is the low from May 12th.
What caused Tesla’s 4.5% drop after a record sales quarter?
Last night, Tesla released its earnings, the first of the Magnificent Seven mega corporations to do so, and again traders did not hold back in their response.
With adjusted earnings per share 50 cents versus analyst expectations of 54 cents, Tesla shares dropped 4.5% to a 6-day low of 41723 (see chart above). While the company reported a record quarter of vehicle sales any positivity was undermined by rising costs, with President Trump’s tariffs alone estimated to have cost the company around $400 million. Even a presentation from Elon Musk about the potential revenue to be generated from robots, self-driving technology and AI still failed to stir investor risk appetite.
Key technical levels - 4 Hour Chart TSLA.US-24:
Will Tesla find support or face more pressure?
Looking at the shorter term 4-hour chart above, the recent drop in the Tesla share price has taken it below the falling Bollinger mid-average, which is currently at 43582. With the upper and lower Bollinger bands widening to reflect the possibility of further short-term volatility ahead traders may need to tread cautiously.
Potential Support: 41508 (Oct 20th low) then 40616 (Oct 10th low)
Potential Resistance: 43582 (Mid-average) then 44966 (Oct 20th high)
What’s next for the Magnificent Seven earnings line-up?
The sell off in Netflix and Tesla shares may serve as an important wake up call to remind traders that a lot is riding on this Q3 earnings season, especially with sentiment fragile and prone to quick sharp changes.
Next week takes on even more significance with earnings updates from Alphabet, Microsoft and Meta next Wednesday (after the close) and Amazon and Apple on Thursday (after the close).
These results could prove pivotal for the direction of these individual companies but all US major stock indices moving forward into November. Trader sensitivity to AI spending and related revenue as well as actual earnings when judged against high expectations, could serve up an extra dose of market volatility to end October.
