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Oct. 26, 2019, 1:12 p.m. EDT

Netflix is now a ‘don’t touch’ stock for investors

The streaming company is showing pervasive weakness

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By Nigam Arora


MarketWatch photo illustration/iStockphoto, Getty Images

FAANG stocks are popular. But now one of them is beginning to lose its mojo.

How long could this last? Let’s examine the issue with the help of a chart.

Please click here for an annotated chart of the stock of Netflix /zigman2/quotes/202353025/composite NFLX +8.07% .

Note the following:

• There was a time when Netflix’s stock was outperforming other FAANG stocks — Apple /zigman2/quotes/202934861/composite AAPL +0.25% , Amazon /zigman2/quotes/210331248/composite AMZN +0.55% , Facebook /zigman2/quotes/205064656/composite FB +0.23% and Alphabet unit Google /zigman2/quotes/205453964/composite GOOG +2.04%   /zigman2/quotes/202490156/composite GOOGL +1.34% .

• Over a long stretch, Netflix’s stock significantly outperformed the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.44% , S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.05% and the Nasdaq-100.

• Netflix had been the darling of FAANG stocks. But as the chart shows, times have changed.

• The most money with the lowest risk is to be made by identifying changes before Wall Street does. This is the premise behind our method.

• The chart shows the Arora call to sell or short-sell Netflix. Netflix was sold short at an average price of $380.

• Wall Street was late in fully identifying the potential impact of competing services from the likes of Apple, Disney /zigman2/quotes/203410047/composite DIS +2.17% and AT&T /zigman2/quotes/203165245/composite T +2.00% .

• The chart shows the Arora signal to buy to cover the last tranche of Netflix as low as $255. The Netflix stock trade has been very profitable.

• The chart shows when Netflix earnings were released. Earnings showed a number of cracks but were better than feared.

• As the chart shows, the stock had run up going into earnings. Segmented money flows show that the buying started due to a short squeeze. After all, short-sellers had great profits on the stock and they wanted to buy to cover before the earnings.

• Going into earnings, once the momentum reversed to the positive side due to the short squeeze, segmented money flows show the momo (momentum) crowd jumped in on the momentum reversal.

• As the chart shows, after the earnings release, the buying was mostly from the short-squeeze and momo crowds.

/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 548.73
+40.97 +8.07%
Volume: 21.61M
July 10, 2020 4:00p
P/E Ratio
111.06
Dividend Yield
N/A
Market Cap
$241.33 billion
Rev. per Employee
$2.22M
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 383.68
+0.95 +0.25%
Volume: 22.56M
July 10, 2020 4:00p
P/E Ratio
30.08
Dividend Yield
0.85%
Market Cap
$1663.00 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,200.00
+17.37 +0.55%
Volume: 5.49M
July 10, 2020 4:00p
P/E Ratio
152.86
Dividend Yield
N/A
Market Cap
$1596.08 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 245.07
+0.57 +0.23%
Volume: 22.98M
July 10, 2020 4:00p
P/E Ratio
33.58
Dividend Yield
N/A
Market Cap
$698.78 billion
Rev. per Employee
$1.57M
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,541.74
+30.75 +2.04%
Volume: 1.86M
July 10, 2020 4:00p
P/E Ratio
31.11
Dividend Yield
N/A
Market Cap
$1051.48 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,539.01
+20.35 +1.34%
Volume: 1.80M
July 10, 2020 4:00p
P/E Ratio
31.05
Dividend Yield
N/A
Market Cap
$1051.48 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
26,075.30
+369.21 +1.44%
Volume: 337.36M
July 10, 2020 5:09p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,185.04
+32.99 +1.05%
Volume: 2.41B
July 10, 2020 5:09p
loading...
/zigman2/quotes/203410047/composite
US : U.S.: NYSE
$ 119.34
+2.53 +2.17%
Volume: 14.21M
July 10, 2020 4:03p
P/E Ratio
40.27
Dividend Yield
0.00%
Market Cap
$215.56 billion
Rev. per Employee
$295,532
loading...
/zigman2/quotes/203165245/composite
US : U.S.: NYSE
$ 30.13
+0.59 +2.00%
Volume: 36.89M
July 10, 2020 4:04p
P/E Ratio
15.25
Dividend Yield
6.90%
Market Cap
$214.68 billion
Rev. per Employee
$637,332
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