FANG Stocks Update: Netflix Back To the Brink

Posted by jbrumley on July 21, 2021 2:50 PM

Pushing past the mostly-bearish volatility from May, the market - led by the FANG stocks - logged a pretty impressive June. July hasn't been too shabby either, even with recent stumbles.

There's one alarming exception to this norm, however. Already lagging its peers as well as the broad market, a disappointing earnings report from Netflix after Tuesday's close pulled the rug out from underneath Netflix (NFLX) shares. One more misstep could send it careening.

But, first things first. Here's where all the FANG stocks and key indices are since logging term lows in May of last year. Clearly Apple (AAPL), Alphabet (GOOGL), and Facebook (FB) are doing more than their fair share of the work, but the work as a whole is lifting everything. The tech-heavy NASDAQ where all of the FANG stocks are listed has outperformed the S&P 500 for the obvious reason.

Netflix of course sticks out like a sore thumb, trailing everything. But, its situation is actually even worse than it seems with just a quick glance at the performance comparison chart.

Take a look at the daily chart of Netflix below. With Wednesday's plunge, shares are back under the 100-day (gray) and 200-day (green) moving average lines, and putting pressure on the 50-day moving average line (purple). The stock's still above the lower boundary of the trading range, which connects all the key lows going back to May of last year (red), which maintains the possibility of a recovery move.

Take a closer look at the moving average lines, however, and red flags start to wave. The 50-day and now the 100-day moving average lines are now below the 200-day average, and the fact that all four key moving average lines are now converging after last year's bullish divergence sends a clear message that the rally is out of steam. You'll also notice that the volume behind a couple of the daily setbacks since last week has been rather brisk.

Sure, technically speaking the rally is... perhaps not impressive, but at least intact enough to pose the possibility of a renewal. Context matters though. In this case, against the backdrop of clearly-waning momentum, a little bit of bearishness could easily turn into a lot of bearishness in a hurry, dragging shares under the lower edge of its trading range. If that happens, nervous shareholders could easily interpret it as a sign all of this name's prospective bullishness has been exhausted.

Of course, none of this precludes the possibility that Netflix shares only need to peel back to that support line near $493 to spark the sort of rebound we've seen from this stock in recent months. This is why we mark a chart's historical lines in search of hints rather than make broad assumptions about what lies in store.

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