NFLX Postmortem

NFLX was a long trade idea mentioned several times in July, but specifically an idea in which we wait for NFLX to pullback and come to us at a better price was put out on July 23rd in this post.

I wasn't expecting the pullback that we saw, but there were a few members who followed upon the trade and did trade NFLX long and made some money.

It was released today that Carl Icahn bought 10% of NFLX and the stock was up +13.77% on the day, the catch with 3C analysis, of all of the shares Icahn bought, only 500k were actual shares, the rest were bought via Call options (Sept 4, 2014), about 5.541 mn call options.

I doubt 3C would be showing much as far as the call options or the 500k in real shares bought, but I would think someone or quite a few someones on the hedge fund side of things caught wind or noticed the unusual options activity (5.5 mn of Sept 2014 calls!?!?!).

In that case, I suspect some hedgies piggy-backed Icahn's trade.

Any way, what we were looking for back in late July was a move down, we got a much bigger move down than we expected.

 Here's NFLX in green and the SPY in red, around late July NFLX did drop while the SPY was headed higher on bad earnings, it turns out we might have been able to see a leak in the earnings back then, the second earnings miss in yellow looks less likely we would have found anything.

In the July trade idea, I mentioned what looked like a base building in NFLX, now according to filings, Icahn didn't start buying up calls until early September, I can't explain all of this, but we rarely can when we see money moving, we don't know why, we just can see it moving.

 This 2 hour chart shows a clear change in character in NFLX from a  confirmed downtrend to positive divergences sending NFLX higher and sideways.

 On the hourly chart in June there was a positive divergence, someone I think knew earnings weren't going to be good and sent the price higher to sell in to higher prices. Note the positive divergence sending prices higher.

Here's the hourly chart just before earnings and the gap down, it's in a leading negative divergence.

Even from the post in July, there were signs of a negative divergence or selling...

From the actual post with the actual commentary...

" The 1 min trend finally signaled NFLX was ready to move down from this plateau it has been trading on."

"The divergence on the 30 min chart is quite clear, not much noise so this tells us the path of highest probabilities is down, but not in a destructive way, rather a constructive way, this is why we'll be watching for signs of accumulation on a pullback."

And the general trade idea...

"If something like that happens, NFLX would be likely to fill this gap in yellow, so for now I'd consider this noise, but keep watching for that move lower in to underlying strength. With the size of the potential base, it should be able to sustain an impressive move up and the entry would be at much lower risk and higher probabilities."

As you can see, NFLX did fall on earnings and did build a larger base on a positive divergence, somewhere during all this Carl Icahn bought 10% of the company.

It just goes to show, you never can really understand what is going on until the reasons are no longer profitable, but when we see big changes and movement in money, usually something is going on.