Netflix is the undisputed heavyweight champion of momentum stocks. Many have the false impression this makes it a great stock to trade on a daily basis. Oh contraire! For years its intra-day behavior has been quite erratic. But occasionally it sets up quite well. And when it does you should pay attention. Tomorrow, NFLX will begin trading split adjusted 7:1. This will bring its price to a shade above $100. I posted this daily chart of NFLX last month positing that it could complete its move in the range of 720-730. That would give us a price of 103-104ish tomorrow. I will be looking for the failure to get more aggressively short.
A few years ago BIDU did a 10:1 split bringing the price down to $80ish and many traders attempted to short it as they believed the runup pre-split would mean revert. I’m sure many traders will be thinking the same thing about NFLX tomorrow. This should create a lot of extra liquidity, and make it easier to judge the strength or weakness of the stock. It is possible NFLX will become a better day trading vehicle for awhile similar to BIDU in the months following its split. Eventually the market making programs will lose enough money and then start providing less liquidity but until that happens I’ll do my best to stick with it.
Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, options, forex and futures. He has traded professionally for 19 years. His email address is: [email protected]