Netflix sank for the third time in four sessions but limited its weekly loss to 3% as blue chips and smaller-cap companies paced the upside in stocks today.
The Russell 2000-tracking iShares Russell 2000 (IWM) ETF was virtually flat, and in late-hour trading the S&P SmallCap 600 showed a slight drop of less than 0.1%. The Dow Jones industrial average rose 0.4% on the back of as many as eight of its 30 components rising 1 point or more.
At 3:45 p.m. ET, the S&P 500 advanced marginally, up 0.1%. The Nasdaq composite edged up less than 0.1%. But at 7828, the premier index for growth companies held a superb 13.3% year-to-date gain. In 2017, the tech-rich composite rose 28.2%.
Netflix (NFLX), the global online video streaming giant, dropped more than 4% and marked a session low of 395.08. Volume was running roughly 70% above its average pace. The sell-off comes on the eve of its second-quarter results due on Monday after the market close.
Such sell-offs are common in widely followed companies. Sometimes, as noted in historical narratives on Wall Street, large players seek to shake some investors out by selling the stock hard ahead of important news.
Is this the case again with Netflix?
While no one can say so with 100% certainty, the company shows both fundamental and technical reasons why it still attracts heavy institutional sponsorship.
On the fundamentals side, earnings per share have soared 114%, 567%, 67%, 142%, 173% and 60% vs. year-ago levels in the past six quarters.
Outstanding profit growth is not expected to end anytime soon. The Street expects Q2 earnings to drive 427% higher to 79 cents a share.
Analysts on Wall Street see Netflix’s revenue, up 33% and 40% vs. year-ago levels in the prior two quarters, ramping up another 41% to $3.94 billion in the June-ended quarter and up 38% to $4.13 billion in Q3.
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Second, notice on a weekly chart how the stock got challenged by sellers in March and April, but overcame these sharp declines and found support at or near the key 10-week moving average.
The 10-week moving average can offer an excellent entry point after a proper breakout from a good base pattern. It tracks a stock’s average weekly closing price over the past 10 weeks. When a market leader pulls back to this line, drawn in red on IBD and MarketSmith charts, it usually attracts fund managers who seek to add to their positions and share high conviction in the stock’s long-term future.
Also, notice how Netflix recently staged a run of five weekly gains in a row. That’s unusual strength, and a common trait among true market leaders.
Netflix shows solid ratings on Stock Checkup, including a 97 Earnings Per Share Rating, a 98 RS Rating and a B for Accumulation/Distribution over the past 13 weeks.
The company has joined IBD Leaderboard as early as July of 2014.