Search for alternative investments is on for NFLX investors as it underperforms
22 Jan, 201913 min read
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NETFLIX INC was among the worst performers on Tuesday. It delivered -4.11% to close at 325.16. On a day when the overall market breadth was 35%, it closed higher than 2% of the market. In comparison, the benchmark SP500 index closed today at -0.0142%.
NFLX is currently in a bullish trend. The previous long signal in NFLX has not been profitable for investors in general. If you are invested in NFLX at current levels please make sure that your allocation is limited and that your portfolio is well diversified.
NFLX has been outperforming the SP500 index in recent time. It showed significant outperformance (compared to the SP500 index) from 22 Jul, 2016 to 11 Jul, 2018. Over the last 3 years and 1 month, NFLX outperformed the SP500 index on 52% days.
During the last three months NFLX delivered losses on 51% days. However, it still managed to end this period in a profit. It's best return during this period (of +9.72%) was on Friday, 4 Jan, 2019. While it's worst loss in the same period (of -9.4%) was on Wednesday, 24 Oct, 2018. The longest stort-term trend during this period was 9 profitable days, which started on 26 Dec, 2018 and went on till 8 Jan, 2019. This bullish trend returned +32.5% to investors.
The last 12 months saw NFLX's investors making profits in 8 months and incurring losses in 4 months. During the last year, NFLX and SP500 index had the same number of profitable months. NFLX significantly outperformed SP500 index in Jan 2019, when it returned +21.48% compared to +4.9% returned by SP500 index during it's best month in the last one year - Jan 2019. NFLX had a shorter streak of profitable months than SP500 index. It only went up in 5 straight months during the last year.
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NFLX is currently seeing overall fall in volatility. In comparison, the SP500 index is seeing decrease in volatility. During the last three months, there was a significant fall in NFLX's volatility from 24 Oct, 2018 to 17 Jan, 2019. While there was a significant surge in the SP500 index's volatility from 27 Nov, 2018 to 27 Dec, 2018.
Advanced/professional short-term investors should note that NFLX has negative skewness in it's return distribution. This indicates that investors may need to stay invested through long periods of drawdown before expecting a recovery.
Investors trading in NFLX derivatives at this moment can consider 'Married Call' options strategy to receive better risk-adjusted returns.
SP500 index has more chance of extreme outcomes than NFLX. Therefore, SP500 must receive a lower allocation than NFLX in your portfolio. SP500 index usually has shorter drawdown period than NFLX.
On a general note (since you are interested in NFLX), three mid cap instruments that deserve special mention are ABMD, LULU and SQ. They have all outperformed the market and must be closely watched for investment opportunities.
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