Netflixs pop is a chance to get short rather than long, strategist says
Netflix’s stream lower seems to have stopped — for now.
The stock popped by over 1% on Monday following a bullish note from Bank of America that flagged a “significant reacceleration” in downloads of Netflix’s mobile app from the third quarter of last year.
The note comes after a nearly two-month downtrend for shares of the streaming giant that followed its second quarter earnings release, in which Netflix reported markedly weaker-than-expected paid subscriber growth.
But not everybody believes this is a true turning point for Netflix. Among the doubters is Boris Schlossberg, managing director of FX strategy at BK Asset Management and co-founder of trading website BKForex.com.
“To me, any bump in the stock right now is just an opportunity to short,” he said Monday on CNBC’s “Trading Nation.” “I do think it’s an opportunity here to get short rather than long.”
While Schlossberg recommended using long-term put options to bet against the stock instead of a traditional short sale, he maintained that the oncoming threat from Disney would likely throw already volatile Netflix into further turmoil.
“The existential question with Netflix is whether it’s going to get Nike-fied, he said. “It used to be marketing dogma that the first-mover advantage always owns the consumer space. But then Nike went into soccer and really gave Adidas a run for [its] money and basically destroyed that whole idea. And I think Disney is going to do the exact same thing with Netflix.”
So, as Disney prepares to roll out its Disney+ streaming service in November, Netflix investors should be warned of the potential pain, Schlossberg said.
“Disney’s content, Disney’s marketing, Disney’s product and Disney’s ability to just outproduce Netflix, I think, is going to be very, very strong,” he said. “Unless they blow the rollout, you’re going to see at least some … slippage away from Netflix to Disney. And since Netflix is so incredibly levered to subscriber growth, even if there’s just a little bit of substitution, just a tiny bit of substitution, I think it’s going to weigh on the stock.”
Miller Tabak chief market strategist Matt Maley isn’t surprised that Netflix was bouncing back given its recently oversold status, but he also isn’t sure the surge will last.
“On an intermediate- to long-term basis, the chart really doesn’t look good at all,” he said in the same “Trading Nation” interview. “The stock had been stuck in a sideways range for almost seven months. It was already underperforming.”
Fast forward to the recent past, and Netflix’s stock activity still doesn’t look promising from a technical standpoint, Maley said.
“The bottom end of [its recent] range was its 200-day moving average,” Maley said. “It broke strongly below that moving average back when it reported earnings this summer, and then when it bounced back, it got right back up to that line and rolled back over to a lower low.”
That spells trouble for shares of the streaming giant, the technical expert warned.
“Whenever a stock breaks below a multimonth sideways range and then follows that up with a lower high and a lower low, that’s not real good at all,” Maley said. “It’s not a stock I’d be buying at these levels.”
Netflix shares have gained nearly 10% year to date.