Simplistic technical analysis for NFLX (October 26th 2014)

It's already more than 10 days since Netflix fell through the bottom after announcing its latest earnings. Last week based on fundamental analysis, I proposed an intrinsic price of $390 odd. The stock has moved rapidly towards its intrinsic price.

There is not much to analyze when looking at long term trends, and we can see that the stock is steadily rising. I had suggested in my last week's blog post that price would rise above 375 in next 4 weeks. It has already gone past that in 1 week, which implies bulls are seeing a long term potential for the stock above $400.

Also, when focused on last 10 days pricing, we can see that the stock has crossed the 4 and 6 day moving averages and is approaching the 8 day average, which I suspect it will cross the coming week.

Based on the above, my amateur predictions are that the stock will approach its intrinsic value of $390 this coming week. I do feel that for $390 price to be validated, a lot more news on the international side of the business needs to show up as positive, but purely based on momentum, we should see the price rise to around $400 to $405 in the next 2 to 3 weeks. We may see some short term profit taking at 400 as well, which seems to be the next logical resistance point.

Simplistic technical analysis for Russell 2000 (October 26th 2014)

In my previous week's post, I had suggested that the Russell 2000 Index will rise to 1160 and then fall. This past week the index did rise as suggested, but not all the way to 1160 as yet. The index reached 1120 and I think it will continue that trend till 1145-1150 by the end of the week.

In terms of technical analysis, I will use the similar set of indicators as previous week, with minor changes.

We are looking at the one year candlestick chart for Russell 2000 on Yahoo stocks. I have added the following indicators to the chart.

1. Bollinger Bands at 20 days and 2 Standard deviation
2. 20, 50 and 200 day Simple Moving Averages
3. MACD indicator for 26, 12 and 9

If we look at past week's action, the overall downward trend continued from July 2014 (shown by red arrows 1 and 2).

The daily candlestick formation indicates a pause before the stock will continue the upward trend in the near term (next 3 to 4 days). This is highlighted in the red boxes (5, 4 and 3) to compare with historical trends.

The short term reversal will start perhaps middle to end of next week, as the index touches the top of the bollinger band as well as MACD divergence histogram touches 7.3. The MACD and signal however are much below zero indicating that the price will continue higher in the short term though at perhaps a slower rate.

My amateurish predictions:

1. The index price will now rise at a slower rate (with temporary pullbacks on some days of the week)  to 1150 -1160 towards the end of the week.

2. The reversal will not start before the end of the week, by end of 2 weeks we may see the price testing new lows at 1030 or lower.

FB Valuation (October 2014)

As per the Trefis chart, the fair valuation of FB is $65.50

This assumes a diluted EPS of $1.73

Netflix Valuation (October 2014)

Netflix fell almost 27% as soon as the latest earnings were reported. It was assumed that NFLX would add to subscribers, but subscriber growth was under the expectations and so was EPS growth.

In this post, I will present my assessment of NFLX intrinsic value. Netflix's valuation is based on its growth in US and international subscribers, margins per subscription category as well as content costs for the different segments.

Trefis the online valuation team assessed NFLX valuation to be $315 prior to latest earnings release. You can see that the price is made up of $5.37B revenue and $5.15B in expenses for 2014.

1. Average fee per subscriber will rise from $7.61 (2014) to $8.78 (2021)

2. US Domestic Streaming Subscribers will rise from 39.6 million customers to 57 million in 2021

3. Average fee per subscribing international customer will rise from $$7.17 in 2014 to $ 8.31 in 2021

4. International subscribers will rise from 26.2 million to almost 100 million

5.  The other element where my assessment of Netflix's trajectory is different in terms of international contribution margin. I feel this will grow from 3% in 2014 to 42.5% which will bring it more in line with Domestic contribution margin.

6. Last element where my assessment is different from Trefis team is Technology R&D costs. I think as Netflix becomes more international, it will have opportunities to lower its Technology R&D costs by at least 0.5%.

7. Final analysis reveals a target of $390....

Ofcourse, the market is not factoring an international growth of similar proportions and it is unlikely that it will do so for a while...

Update October 26th: The stock price closed on Oct 24th at $385, which implies that the market has factored in a more rapid international market growth. We could see the stock cross its valuation of $390 in the coming week and perhaps north of $400 in first two weeks of November 2014.

Simplistic technical Analysis for NFLX (19th October 2014)

Last week when Netflix announced its earnings, it fell in a free-fall to almost $330 from $455 odd. The company had missed earnings, missed adding new subscribers at the rate it was anticipated, as well as given a lower guidance for the year.

Many long term investors jumped ship after hours, leading to a massive drop in the price. The stock wiped off all the gains it had made since April.

Looking at the 1 year chart some interesting things emerge...

1. A typical precipitous drop takes 7 to 9 weeks to recover. Stock has recovered in 7 to 9 weeks in the last year everytime it has dropped 20 to 30% .

2. There is long term support between 320 and 330.

3. There are resistance levels at 400 and 450.

Given these indicators, I suspect, we will find the stock above 375 and most likely below 400 in 4 weeks time.

Looking at the 2 year graph, we can see that the stock has not stayed below the 200 day SMA for too long.

Given that the 200 day SMA has been on a positive slope for the past 2 years, it seems unlikely that bulls will reverse their thesis for too long. In fact, bulls may see it a buying opportunity to take bigger positions, which will see the stock slowly trend upwards.

Lets see how it pans out.

Simplistic Technical Analysis for Russell 2000 (October 19th 2014)

I am fairly new at trying to do technical analysis. But in this post, I thought I will give it a shot. I am looking at the Russell 2000 to understand the direction it will take.

We are looking at the one year candlestick chart for Russell 2000 on Yahoo stocks. I have added the following indicators to the chart.

1. Bollinger Bands at 26 days and 2 Standard deviation
2. 15, 50 and 200 day Simple Moving Averages
3. MACD indicator for 26, 12 and 9

The way I see it, based on last trading day of Friday 17th October 2014 the stock is set for a short term reversal. It has bottomed out at the 52 week low, and is set for a short term reversal, but for a further fall in the medium term.

There are a few things to consider.

1. Overall we are getting lower highs and lower lows, so long term trend is down. (Red arrows in the chart).

2. The latest down turn included three consecutive days of losses, which indicates the secular trend is down as well. (Indicated by red squares on the chart)

3. This is different from indicators of a reversal where we start with morning stars and end with evening stars (indicated in green boxes). Here we start with evening stars and end with morning stars meaning, the chart is failing to break a falling resistance line.

My amateurish predictions:

1. The index will rise to 1150 or 1160 in the near term (under a week), and then reverse and fall 70 to 100 points.

2. By end of 2 weeks, the index will be at 1040 or 1060.

This is my line in the sand. Lets see how it pans out.