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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 +2.14% .

Note the following:

• There was a time when Netflix’s stock was outperforming other FAANG stocks — Apple /zigman2/quotes/202934861/composite AAPL -0.45% , Amazon /zigman2/quotes/210331248/composite AMZN -0.62% , Facebook /zigman2/quotes/205064656/composite FB +0.21% and Alphabet unit Google /zigman2/quotes/205453964/composite GOOG -0.13%   /zigman2/quotes/202490156/composite GOOGL -0.13% .

• Over a long stretch, Netflix’s stock significantly outperformed the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.20% , S&P 500 Index /zigman2/quotes/210599714/realtime SPX -0.16% 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 -0.02% and AT&T /zigman2/quotes/203165245/composite T +1.13% .

• 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
$ 311.69
+6.53 +2.14%
Volume: 7.49M
Nov. 21, 2019 4:00p
P/E Ratio
99.48
Dividend Yield
N/A
Market Cap
$133.74 billion
Rev. per Employee
$2.22M
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 262.01
-1.18 -0.45%
Volume: 30.35M
Nov. 21, 2019 4:00p
P/E Ratio
22.11
Dividend Yield
1.18%
Market Cap
$1169.42 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,734.71
-10.82 -0.62%
Volume: 2.66M
Nov. 21, 2019 4:00p
P/E Ratio
76.80
Dividend Yield
N/A
Market Cap
$865.43 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 197.93
+0.42 +0.21%
Volume: 12.13M
Nov. 21, 2019 4:00p
P/E Ratio
31.62
Dividend Yield
N/A
Market Cap
$563.39 billion
Rev. per Employee
$1.57M
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,301.35
-1.70 -0.13%
Volume: 995,499
Nov. 21, 2019 4:00p
P/E Ratio
27.92
Dividend Yield
N/A
Market Cap
$838.09 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,300.14
-1.72 -0.13%
Volume: 1.28M
Nov. 21, 2019 4:00p
P/E Ratio
27.90
Dividend Yield
N/A
Market Cap
$837.33 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,766.29
-54.80 -0.20%
Volume: 232.02M
Nov. 21, 2019 4:58p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,103.54
-4.92 -0.16%
Volume: 1.86B
Nov. 21, 2019 4:58p
loading...
/zigman2/quotes/203410047/composite
US : U.S.: NYSE
$ 146.90
-0.03 -0.02%
Volume: 6.24M
Nov. 21, 2019 6:30p
P/E Ratio
21.11
Dividend Yield
1.20%
Market Cap
$264.68 billion
Rev. per Employee
$295,532
loading...
/zigman2/quotes/203165245/composite
US : U.S.: NYSE
$ 37.60
+0.42 +1.13%
Volume: 31.36M
Nov. 21, 2019 6:30p
P/E Ratio
16.83
Dividend Yield
5.43%
Market Cap
$271.60 billion
Rev. per Employee
$637,332
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