Netflix (NFLX) Bull-Bear Battle Is 2011's "Must See" Movie
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Netflix (Nasdaq: NFLX) is one of the most loved and hated stocks on Wall Street these days. After a stellar 2010, the bull-bear battle in the stocks is shaping up to be one for the ages in 2011.
Since it inception, Netflix has done an amazing job making inroads in the DVD rental market, a market that was once dominated by Blockbuster. However, in 2010 the company took it to the next level. Not only did Blockbuster file bankruptcy, Netflix made online streaming video its growth driver. Shareholders noticed, sending the stock up 220 percent on the year.
If you don't have Netflix yourself, you likely know someone that does. It is a great, great product. However, while Netflix the product cannot be denied, short sellers now believe the stock is grossly overvalued to the point of insanity. They argue that the company will never be able to meet the lofty expectations of the bulls.
With 2010 being a stellar year for the longs, traders are noticing that now, as the year is closing out, the stock is starting to act a little sick.
Netflix recently broke below the 50-day simple moving average (SMA) and 50-day exponential moving average (EMA), signs of weakness in the high-flying momentum stock.
The 50-day SMA is currently being calculated at $180.04. The 50-day EMA is being calculated at $177.05. Shares are currently at $176.90.
The SMA displays a smoother chart eliminating quick volatility spikes by giving equal weight to all prices in the time period. The EMA is good in quick moving markets and reduces lag as it applies more weight to recent prices.
Traders rely heavily on technicals for momentum stocks like Netflix, so the break-down should not be taken lightly.
While Netflix is a heavily-shorted stocks, up until recently they have been dead wrong of their bet. However, shorts that have had the wherewithal to maintain their positions, are pressing their bets and going public with their message.
Short seller Whitney Tilson, of hedge fund T2 Partners, recently laid out his short thesis for all to see. Tilson sees content prices for Netflix increasing, competition hurting margins, and the company's movie offerings as just too bare. In addition, he cite the CFO's recent resignation; threats to the First Sale doctrine for DVDs; internet bandwidth costs potentially increasing; declining FCF conversion; and market saturation.
Neflix CEO Reed Hastings addressed short seller Tilson, suggesting that he cover his bet against the company for the sake of his charitable heart. Hasting said while Tilson only has to be right on one of the issues cited in his short thesis, he will likely be wrong on of all them.
The war between the longs and shorts in Netflix will wage on, with 2011 possibly becoming the deciding year on who ultimately wins. Get your popcorn, take your seat and enjoy the theatrics - it's going to get exciting.
Since it inception, Netflix has done an amazing job making inroads in the DVD rental market, a market that was once dominated by Blockbuster. However, in 2010 the company took it to the next level. Not only did Blockbuster file bankruptcy, Netflix made online streaming video its growth driver. Shareholders noticed, sending the stock up 220 percent on the year.
If you don't have Netflix yourself, you likely know someone that does. It is a great, great product. However, while Netflix the product cannot be denied, short sellers now believe the stock is grossly overvalued to the point of insanity. They argue that the company will never be able to meet the lofty expectations of the bulls.
With 2010 being a stellar year for the longs, traders are noticing that now, as the year is closing out, the stock is starting to act a little sick.
Netflix recently broke below the 50-day simple moving average (SMA) and 50-day exponential moving average (EMA), signs of weakness in the high-flying momentum stock.
The 50-day SMA is currently being calculated at $180.04. The 50-day EMA is being calculated at $177.05. Shares are currently at $176.90.
The SMA displays a smoother chart eliminating quick volatility spikes by giving equal weight to all prices in the time period. The EMA is good in quick moving markets and reduces lag as it applies more weight to recent prices.
Traders rely heavily on technicals for momentum stocks like Netflix, so the break-down should not be taken lightly.
While Netflix is a heavily-shorted stocks, up until recently they have been dead wrong of their bet. However, shorts that have had the wherewithal to maintain their positions, are pressing their bets and going public with their message.
Short seller Whitney Tilson, of hedge fund T2 Partners, recently laid out his short thesis for all to see. Tilson sees content prices for Netflix increasing, competition hurting margins, and the company's movie offerings as just too bare. In addition, he cite the CFO's recent resignation; threats to the First Sale doctrine for DVDs; internet bandwidth costs potentially increasing; declining FCF conversion; and market saturation.
Neflix CEO Reed Hastings addressed short seller Tilson, suggesting that he cover his bet against the company for the sake of his charitable heart. Hasting said while Tilson only has to be right on one of the issues cited in his short thesis, he will likely be wrong on of all them.
The war between the longs and shorts in Netflix will wage on, with 2011 possibly becoming the deciding year on who ultimately wins. Get your popcorn, take your seat and enjoy the theatrics - it's going to get exciting.
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