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.
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.