Wednesday, January 26, 2011

Am I Bummed Out About My Netflix Trade?

Another snow storm for tonight and into tomorrow. I will probably take the day off.

Am I Bummed Out About My Netflix Trade?
I have been open about my new trading strategy so far in the new year. I wanted to take a minute and discuss my Netflix (NFLX) trade that I had on earlier this month in light of tonight's earnings release and stock price run up after hours.

Quick recap;
Using the iBankCoin PPT trading algo and screening for (their hybrid score) oversold stocks that had high institutional ownership I was a little surprised to see NFLX show up as it almost never seems to get oversold. The other stock I found was Edwards Biosciences (EW). There were quite a few other stocks or ETF's that showed up, but these two I liked the best on a short term risk/reward metric after working the charts and doing my own analysis.

Here is a 4 hour chart of NFLX that shows the basic setup I was looking at on January 7, 2011 via FreeStockCharts:

I do not want to hash out all the particulars, I am not a trading teacher. I liked:
-Oversold condition (both chart wise and Hybrid OverSold score)
-Momentum oscillators favorable for an uptick
-Overall favorable market (everything going up)

I entered in at $178 and had a target to the upside of 10%, or about $196. The action on the stock was very favorable and I was even very close to my target around January 18 ($192). So what happened?

Things happened. They always will and do.

Steve Jobs announced he was taking a leave from Apple and that put a fear jolt into the tech space for whatever reason. Market internals began to weaken as well. Momentum stocks in general (I call them MOMO stocks) began to get walloped after Coinstar (CSTR) blew up (down 25%) after missing earnings by some fraction. Tom Demark said the world was going to end (stocks to pull back 10%, OH NO!). All this was going on and and you know what, it doesn't matter.

I never had any intention of holding a MOMO type stock into earnings (see CSTR). As the chart for NFLX began to weaken on the hourly looks, I rolled up stops to protect gains. I was stopped out on January 20 at $188 for a gain of about 6%. I felt pretty good about my discipline and a nice gain. NFLX would move to as low as $180 in the following days.

So what's the point of this post? It is this:
Netflix reaches 20M subscribers in 4Q, lifting earnings 52 percent; stock soars 9 percent
NFLX is trading at around $200 tonight in after hours trading.

Am I bummed out? Sure, that was the move I wanted and then some. Who would not be a little down after that? I am human, not a robot.

Am I really upset? Not at all. I stayed with my plan and traded my style, conservative and protective of gains. I observed the technicals of the situation and acted accordingly. I was pleased with how I was able to use the PPT tools to find two stocks I never would have bought otherwise and I felt confident about my trades.

Well, that 13-15% pop would have been nice to ride though......

Have a good night.


Kid Dynamite said...

"I never had any intention of holding a MOMO type stock into earnings "

bingo. You have ZERO edge on earnings, and didn't own it as an earnings story, so you're just plain gambling if you hold it for earnings. and we've seen stocks get MASSACRED lately on disappointments. you mentioned CSTR - see also: FFIV.

getyourselfconnected said...

I should have noted the FFIV blow up as well. Just too dangerous to risk an overnight gap down of 20-40%. Well, it is a new quarter, HA!

GawainsGhost said...

In poker, there is a saying. If you can't recognize the mark at the table, you are the mark at the table.

Did you lose money? No.

Did you get all of your money back? Did you even realize a modest return? Yes.

Then you won.

GawainsGhost said...

Snowed in are you, GYC? Yeah, it's pretty cold down here too. Which means it's about 50 degrees.

Anyway, I got another book recommendation for you. The biography of Red Adair, titled An American Hero. It's a fascinating life story about the man who invented putting out oil well fires. Good book to read when it's cold outside.

getyourselfconnected said...

indeed off today and now done with 2 hours of sno shoveling and snow removal from the roof awnings. I think work would have been better.

Did some reading on Amrillo Slim, what a guy! Probably a piece on him Friday night, thanks.

GawainsGhost said...

You can't go wrong with Amarillo Slim. He was one hell of a pool shark and poker player. In fact, poker wouldn't exist as it does today if it weren't for him and Texas Dolly Brunson.

What fascinates me about these guys is that they always knew what they were doing. Whether they had some inside information or were playing blind, they knew what the risks were.

And that's what really matters, risk. You may know the odds inside and out, but if you don't know the risks involved, well, you'll get taken to the cleaners.

getyourselfconnected said...

I read brunson's book "My 50 Most Memorable hands" and it was amazing. I miss playing poker a lot.

watchtower said...

I plan on getting some expensive Blackjack lessons this coming March in Vegas.

NFLX said...

Netflix has improved a lot.. Totally agree with the author that even I have never seen just a big hit by Netflix.