Below is a chart of the Netflix (NFLX) from 2010 to 2022, reflecting Price Momentum data. Continue reading
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Category Archives: Netflix
Tesla Motors Added to Nasdaq 100, The Countdown Begins
On July 8, 2013, it was announced that Tesla Motors (TSLA) would join the Nasdaq 100 starting on July 15, 2013 (PR here). Our analysis of Tesla will follow the review and performance of additions and deletions to the NASDAQ 100 Index.
As has been well documented on our site, the Nasdaq OMX has a history of adding and deleting companies on the Nasdaq 100 Index in a manner that is consistent with a money losing speculator. The most recent example of the NASDAQ OMX follies, prior to TSLA, was when Netflix (NFLX) was added to the index after the stock price rose +141.32%…after being dropped from the index on December 24, 2012 (PR here). Not to be outdone by itself, the NASDAQ OMX team previously added NFLX to the Nasdaq 100 on December 20, 2010 (PR here).
Our NASDAQ OMX debrief on NFLX additions and deletion:
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Added to Nasdaq 100 on 12/20/2010: stock declines –49.32%
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Dropped from Nasdaq 100 on 12/24/2012: stock gains +141.32%
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Added to Nasdaq 100 on 6/6/2013: to be determined; up +11.98% so far
In our annual Nasdaq 100 Re-Rank Review in December 2012 (found here; includes 2010 and 2011 reviews), we pointed out that the stocks being dropped from the index typically outperform the stocks that are added to the index within the first year (our minimum benchmark). Below is the performance of the stocks that were added or dropped since the Nasdaq 100 changes on December 24, 2012:
|
Symbol
|
Name | 12/24/2012 | 7/10/2013 | % change | |
| ADI | Analog Devices, Inc. | 41.35 | 46.73 | 13.01% | added |
| CTRX | Catamaran Corporation | 49.2 | 47.31 | -3.84% | added |
| DISCA | Discovery Comm. | 60.82 | 82.86 | 36.24% | added |
| EQIX | Equinix, Inc. | 198.56 | 190.84 | -3.89% | added |
| LBTYA | Liberty Global Inc. | 60.31 | 77.42 | 28.37% | added |
| LMCA | Liberty Media Corporation | 110.5 | 135.06 | 22.23% | added |
| REGN | Regeneron Pharmaceuticals | 179.71 | 236.7 | 31.71% | added |
| SBAC | SBA Communications Corp. | 69.62 | 75.94 | 9.08% | added |
| VRSK | Verisk Analytics, Inc. | 48.84 | 61.67 | 26.27% | added |
| WDC | Western Digital Corporation | 37.78 | 67.23 | 77.95% | added |
| Average | +23.71% | ||||
|
Symbol
|
Name | 12/24/2012 | 7/10/2013 | % change | |
| APOL | Apollo Group Inc. | 21.02 | 17.89 | -14.89% | dropped |
| EA | Electronic Arts Inc. | 15.3 | 23.9 | 56.21% | dropped |
| FLEX | Flextronics International | 6.09 | 7.86 | 29.06% | dropped |
| GMCR | Green Mountain Coffee | 40.32 | 70.09 | 73.83% | dropped |
| LRCX | Lam Research Corporation | 36.37 | 49.52 | 36.16% | dropped |
| MRVL | Marvell Technology Group | 8.21 | 11.71 | 42.63% | dropped |
| NFLX | Netflix, Inc. | 93.3 | 243.82 | 161.33% | dropped |
| RIMM | Research In Motion Limited | 14.04 | 9.28 | -33.90% | dropped |
| VRSN | VeriSign, Inc. | 35.9 | 45.66 | 27.19% | dropped |
| WCRX | Warner Chilcott plc | 11.7 | 19.53 | 66.92% | dropped |
| Average | +44.45% |
As can be seen in the table above, on average, the stocks that were “added” underperformed the stocks that were “dropped” by 87%. To be fair, if we exclude the gains of Netflix (NFLX), then the gains of the stocks “dropped” from the index would fall to +31.47%. However, this is still nearly 33% greater than the gains achieved by the stocks that were “added” to the Nasdaq 100 Index. Alternatively, if the highest performing stocks were deleted from each group, then the gains would be +17.69% for “added” versus +31.47% for “dropped”.
We understand that the parameters for addition and deletion of companies to the Nasdaq 100 are mechanical and therefore cannot discern qualitative aspects of the stocks being included in the index. However, individual investors should strategize around some of the demonstrated weakness and strengths of companies added to and dropped from the Nasdaq 100 Index.
Tesla Downside Targets
With Tesla being added to the Nasdaq 100 after the stock has climbed a parabolic wall of worry, it seems fitting that we are now able to project downside targets for the stock applying Edson Gould’s Speed Resistance Lines (SRL). Below is the SRL for Tesla Motors as of July 10, 2013:
Few stocks that we have run the SRL on had such an extraordinary climb in price. Even our Netflix SRL (found here) from December 3, 2010 had a more gradual rate of increase. Based on Edson Gould’s SRL, TSLA has a conservative downside target of $64.56 while the extreme downside target is set at $41.77. There is the off-chance that TSLA could go as low as $30. However, this interpretation cannot be taken into consideration until TSLA reaches the $41 level.
Keep in mind that falling by half is not an easy task. As was the case with our Netflix SRL from December 3, 2010, NFLX climbed +61.08% before falling below both our conservative and extreme downside targets. We don’t short stocks based on SRL. Instead, we consider buying stocks once they achieve our downside targets.
With Tesla Motors being added to the Nasdaq 100 Index after having an increase in price by +264% in the last six months, there will be plenty of action for this stock in the short and long-term.
Posted in Nasdaq 100, Netflix, NFLX, Tesla Motors, TSLA
Diamond Foods and Speed Resistance Lines
In retrospect, everything appears “oh so clear.” We love history and attempt to interpret events from the past as a means to project into the future, assuming everything remains the same. Which is why the chart below seems so stunning to us.
The above chart of Diamond Foods (DMND), which has recently been blown out the water due to some accounting “irregularities” and the dismissal of the CEO and CFO, demonstrates the seeming power of Edson Gould’s speed resistance lines (SRL). First, notice that the high of DMND was at$96.13, the starting point for all analysis of SRLs. Based on the high of $96.13, the conservative downside target would have been the $48.47 level. At the same time, the extreme downside target would have been the $21.00 level with an intermediate downside target of $32.04.
Amazingly, every downside target has been met with DMND reaching as low as $21.44 , on an intraday low. By the way, little mention has been made of the accounting firm that signed off on Diamond Foods spurious books.
Already, in our prior work, we've seen a Netflix (NFLX) SRL, done in December 2010, give us an extreme downside target of $66. Almost a year later, NFLX declined through the $66 level to fall to as low as $62.37 on November 30, 2011. Another SRL that we ran before it came to fruition was Green Mountain Coffee Roasters(GMCR) on October25, 2011. At the time, GMCR was trading at $64.75. We estimated, using the SRL, that GMCR had an extreme downside target of $37.21. The stock recently fell as low as $39.42 as reviewed in our February2, 2012 posting.
Below is the latest speed resistance lines for a stock that we've been curious about for some time, Clean Harbors (CLH).
Some could reasonably argue that we’re allowing correlation to equal causation, which we’d gladly confess to. However, this explains why we a reactively seeking companies which we can run Edson Gould’s SRLs beforehand to ensure some semblance of integrity in the concept. We want to run this examination through as many companies as we can before the actual decline.
A word of warning, the fact that a stock reaches the extreme downside target does not necessarily mean that the stock or index is considered to be a “buy.” Nor does it suggest that the stock or index cannot fall further. Instead, it only reflects what potentially could happen on the downside. Additionally, SRLs do not suggest a time frame that a decline is expected to occur.
For the NLO team, speed resistance lines appeal to our sense of considering the worst case scenario, which has saved us a lot of money simply by avoiding situations that would create significant loss. Using history to assist us in projecting the downside risk is the primary reason we started examining speed resistance lines.
Posted in Clean Harbor, CLN, Diamond Foods, DMND, Edson Gould, Netflix, NFLX, speed resistance line
Netflix and Speed Resistance Lines
In a February 9, 1970 Barron’s article titled “600 on the Dow?” William X. Scheinman provides an interesting chart of the Dow Industrials (DJI) that outlines what he believes to be the target level that the DJI would fall to before rebounding. This analysis included macro economic analysis that supported the reasons why the Dow was expected to go to 600.
What is most compelling in Scheinman’s analysis is the accuracy of the target level that the DJI was expected to reach. An element that leaves some unanswered questions is that Scheinman had predicted that the DJI would reach 600 within the same year that the article was written. Of course, The DJI didn’t reach 600 until 1974. This has to do with Scheinman’s cycle analysis which is separate and distinct from the topic which we will examine. Being aware of this inconsistency and leaving it aside for the time being, we’ve attempted to understand the rational and methodology of how Scheinman was able to arrive at 600 on the DJI when it was trading at 755.68.
Scheinman indicates that he obtained his method for accurately predicting the level of the DJI from Edson Gould. According to Scheinman, Gould used what is known as the 1/3 speed resistance line measurement to gauge price change and elapsed time which was purported to be two key determinants of crowd psychology in the market. Scheinman goes on to say:
“Resistance lines decline or ascend at one-third or two-thirds the rates of actual declines and advances between significant bottoms and tops. Resistance to advance or decline is frequently encountered at such trendlines; however, if the resistance line is decisively penetrated, the price-action often tends to accelerate in the direction of the penetration.”
In an example provided by Scheinman below, he plots the bull market of the DJI from 1949 to 1970. In that chart, we can see that the dashed line, the one-third speed resistance line, intersects with the 600 level on the DJI.
As far as we can tell, the 1/3 speed resistance line is calculated by dividing the peak of the market move by 3. To be as conservative as possible, we’ve added the 1/3 speed resistance figure to the low of the first major decline in the bull run. In this case, the first major low in the bull market from 1949 to 1966 was at the 1953 low of DJI 254. The peak is indicated to be 1001 (1001/3=333.66). Then we add 333.66 to 254 arriving at a figure of 587.66. In order to account for the extremes, we assume that 1/3 the peak is the point at which the market finally settles. In this case, 1/3 of the peak value is 333.66. We feel that the conservative and extreme values help to establish a range which a market or stock that has had a near parabolic rise will finally settle at or near.
According to our calculations for the market run from 1949 to 1966, 587.66 and 333.66 were the conservative and extreme downside targets for the market, respectively. However, in the article, Scheinman says that the potential worst-case scenario level would be 597.61. For the most part, Scheinman’s estimate was fairly accurate in terms of where the reversal in the market occurred. The bottom in the stock market took place on December 9, 1974 at the 579.94 level.
In the chart of the Dow from 1945 to 1976 below, it should be noted that a large amount of “overshooting” of the 1/3 speed resistance line occurred when the low did take place in 1974 instead of 1970 as predicted by Scheinman. In the case of the Dow, the index overshot the 1/3 speed resistance line in 1974 by 15%. However, the price was well within the established, albeit wide, range of 587.66 to 333.66.
We decided to see how consistent the 1/3 speed resistance line would be if applied to three different situations. First, we’ll review the bull market in the Dow Industrials (DJI) from 1982 to 2007. Next, we’ll run this model using the Philadelphia Gold and Silver Index (XAU) from the bear market bottom of 2001 to the present. Finally, we’re going to see how this model works against Netflix (NFLX), a member of the Nasdaq 100, in a real-time example.
In the case of the bull market run from 1982 to 2007, we divided the peak of the market at 14,164 by 3 and arrived at 4721.33. We then added 4721.33 to the first major low in the market after the beginning of the bull market which was in 1987 at 1738.74. The sum of the two figures is 6460.07 for the conservative and 4721.33 for the extreme scenarios.
When we review the actual bottom in the DJI in 2009 of 6547.05 we can see that the difference between the most conservative estimate and the 2009 low was off by 86.98 points. There is no instance of the DJI overshooting the 1/3 speed resistance line. Although coming within 1.5% of an estimated target seems exceptional, the real challenge becomes, would an investor commit money to an investment before the price level actually hits a projected target? Once invested, could an investor stomach a further decline of 27% or more? [(6460.07-4721.33)/6460.07=26.92%]
In the case of the bull market run in the XAU Index, we divided the peak of the index at 206.37 in 2008 by 3 and arrived at 68.79. We then added 68.79 to the first major low in the index after the beginning of the bull run, which was at 49.83 on November 19, 2001. The sum of the two figures is 118.62. When we contrast the difference between the two numbers, 118.62 and the actual low of 65.72, we see that conservative estimate was accomplished, however a further decline of 45% to below the extreme level was established instead. Reasonably near the extreme end of the range, but who is willing to hold on after a 45% drop?
Finally, in reviewing the chart pattern of Netflix (NFLX), we have the peak of NFLX at $298.73. The conservative estimate for the stock is that it would fall to $148 which has already taken place. The extreme downside target would be $99.58. Because of the nature of the rise, we believe that Netflix (NFLX) is slated to fall at least to the $99.58 level.
If for any reason investors become interested in buying Netflix (NFLX), the ideal time to do it appears to be at a price at or below $99.58. However, the difficulty may be that the sentiment that pushed the stock price to $298.73 would likely be just the opposite to push the price down. Only time will tell whether Netflix is going to conform to technical patterns created by Edson Gould.
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Posted in Edson Gould, Netflix, speed resistance line, William X. Scheinman, XAU