Saturday, September 25, 2010

Cult Stock #1-NFLX

 I decided that I will start a little "series" of analyzing cult stocks (popular).  Over the next few weeks I will be analyzing Apple (AAPL), Baidu (BIDU), (CRM), Intel (INTC), etc. If there is a stock that you would like to be considered for analyzing please use the comment box below to place your tickers.

Today, I will be analyzing Netflix (NFLX).  I have gotten a lot of questions recently about recommended trades for Netflix.  Here is my analysis along with my final trade:

Fundamentals:  Netflix has great fundamentals.  Good management and standing out in an industry bodes very well for Netflix. Blockbuster's bankruptcy is great news for Netflix, not that Blockbuster was anything they were worried about... Very clean balance sheet with only a small amount of debt.  No dividend, which is a bummer.  However, NFLX is up 195% YTD!!

Technicals: This is the rough area for Netflix.  Indicators across the board signal a strong overbought signal.
  • RSI=76.22
  • MACD=8.025
  • Williams%R=-16.63
  • Stochastic (slow)=90.25
These indicators and oscillators are the basics to tell the condition of the stock.  All 4 signal strong sell.  After all the stock is up 195% YTD. 

Final Trade:  I love NFLX as a company.  The fundamentals are great and the growth potential is huge.  However, I can't get behind recommending the purchase of NFLX because of the over powering sell signal of the technicals.  I mean this stock is up 195% since January 4, 2010.  That is very impressive but now you must take profits and wait for a major pullback before you hop back on.  Because the NFLX has such great fundamentals however, I can not recommend shorting this stock at the moment because it is a cult stock and investors will not let go of this stock.  This proves to be a dangerous situation that could burn shorts.  If you own NFLX take your profits, you have had a great run.  Hold tight until NFLX has a pullback before you get back in.  I will keep you updated on this trade as opportunities present themselves.

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

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