NFLX - I've officially lost it - Why I'm short $NFLX

22 ene 2020

A word of advice because I think this idea is straight up crazy. I'm not sure I'd trade this myself, but if I was bullish on netflix - like 90% of the market appears to be, I'd maybe reduce the size of my position.

So...NFLX has practically every reason under the sun to go up today:

• NASDAQ premarket is way up as is the rest of the market futures.
  
• Netflix crushed their subscriber targets increasing global streaming subscribers by 20% YoY
  
• Earnings per share crushed analyst estimates of $.53 taking in 1.30/share
• Quarter sales topped estimates of 5.45B taking in 5.47B
• Heck, even average revenue per subscriber was up an extra 9%
  

With all those glittery stats hitting the news wire yesterday, who in their right mind would consider shorting Netflix?!

The daddie of hacks...that's who...and even I think I might be crazy. Post market, the stock is sitting at $344 and we're working our way through the morning premarket session. Whether that price level holds is doubtful. (Edit: it's already pulled back to $341-2)

So you might ask me, 'Hacky, what's got your knickers in a bunch? NFLX is printing money!' To which I would respond, 'That's what they want you to think.'

Here's what has me thinking something about NFLX doesn't smell right:

• NFLX has been dropping at the open of almost every trading session for the last week during the heaviest volume periods. Why? My guess is institutional investors are liquidating some of their positions. Let's face it, earnings surprises really aren't all that surprising with the price action leading up to them. What is surprising is the higher than usual volume that has been acting like an anchor on NFLX's stock price. With so much bullish sentiment and high expectations from earnings - why has the stock gone sideways or even down the last few days???? With this stellar outlook confirmed, John Q. Public isn't going to sell netflix, if anything, you'd expect a stampede of buyers to flood the market - and that's just the stampede the institutions are waiting for to make some big shifts in their positions.
  
• February is looking rather dismal for the market at large, and let's face it - we're overdue for at least a small correction. At the top of that list is the NASDAQ - gaining 38% last year and NFLX practically in sync. The institutions have been selling off Netflix at the start of each session, and it's weighed on the price - which slowly recovered through the late morning and afternoon session each day. Every 'major' time period (9:30-10, 3:30-4) for the last few days has seen big selling pressure or traded sideways. Why during those time periods? Because that's when the institutions can mask their activities.
  

What I think will happen:
1) NFLX will gap up - how big of a gap is uncertain. Likely between $342-347 would be my best guess.
2) Here comes the head fake and get ready for the whip saw. I think it's highly likely we hit $355-360 at the outset (in the first 5 minutes of trading possibly)...BUT, it'll be short lived. The institutions will then step in and wreck house. We'll see a retracement back down and fill the gap before the stock makes a slight rally in the afternoon session after bouncing off support in the $338 area. Expect the stock to settle back close to where it opens today.

How I'll play it:
1) I'll watch the first minute of the trading day from the sidelines and watch relative volume. If the volume is lower than usual but price is rising, the market is being driven by the fish. I'll likely get a couple calls if the stock shows good momentum and sell them in the $358 range, just prior to completing the gap fill at $360.
2) The volume will be a key indicator - if it's down, and it's obvious the institutions are on the sidelines - what are they waiting for? They're waiting on the price to rise so they can get a premium when the sell off their positions. The second the price gaps get thick to the downside and sell volume ramps up, any long positions are immediately reversed to shorts....expect to ride the stock back down to the $338 level. If that level falls, the uptrend channel going back to september is the next big support in the $320 range. From there what happens likely depends on the market at large. If we see the pullback in february that I think we will, it'd be time to cash in the NASDAQ positions.