Netflix Approaches New Highs as Volatility Fades; Oil Keeps Sliding

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Netflix Approaches New Highs as Volatility Fades; Oil Keeps Sliding

Markets bounced again yesterday as investors begin to see light at the end of the coronavirus tunnel.

There’s no shortage of headlines. So we used TradeStation’s award-winning platform to analyze the trends. Here are a few items that stood out.

Netflix Is Streaming Higher

Coronavirus has confined millions of people around the world in their homes. Multiple analysts have identified Netflix (NFLX) as a beneficiary of the situation:

  • Sensor Tower, a mobile-app research firm, said app downloads rose more than 70 percent in Italy and over 30 percent in Spain. (March 18)
  • Baird upgraded the streaming-video giant to Outperform and raised its price target to $415 from $350. (March 23)
  • Credit Suisse predicted that NFLX would add more subscribers than forecast, especially in Latin America. (March 24)
  • Barron’s reported that streaming-television usage has increased sharply because of coronavirus. New and existing subscribers are driving the trend. (March 27).
Netflix (NFLX), daily chart, with 50- and 200-day moving averages.
Netflix (NFLX), daily chart, with 50- and 200-day moving averages.

NFLX quietly snuck higher as these stories hit. Of all the companies in the Nasdaq-100, it was s the second-closest to its 52-week high yesterday.

Remember NFLX has been trapped below its all-time highs after crashing in June 2018. But now it’s had plenty of time to consolidate and the macro backdrop is potentially more favorable. Not only are more people stuck at home. NFLX is also less economically sensitive than other major Nasdaq stocks. Earnings are due after the closing bell on April 21.

Citrix Systems (CTXS) was the only member of the Nasdaq-100 to make a new 52-week high on Monday. It’s the index’s top-performer this year as customers migrate to a subscription revenue model and remote working boosts demand for its software.

RadarScreen® ranking Nasdaq-100 members by Monday’s high vs. their 52-week highs.

VIX Slides Lower

Market Insights was quick to report the extreme moves in volatility when the coronavirus selloff began. We cautioned that stock-picking would be difficult because individual companies would follow the broader indexes.

This turned out to be the case as sellers proceeded to hammer every corner of the market. Even “safe havens” like gold miners and real-estate investment trusts took a beating along the way.

But this may not remain true if Cboe’s volatility index, also known as the VIX, starts to fall. The VIX has been under pressure since the Federal Reserve announced unlimited support to the financial system a week ago.

Chart watchers may notice that its moving average convergence-divergence oscillator (MACD) recently turned negative. That may signal VIX will decline. Here are a few reasons to watch it:

  1. Options get cheaper if the VIX falls. Traders can profit by selling premium.
  2. Lower volatility will let individual stocks move on their fundamentals. Indexes could make smaller swings.
  3. It’s generally bullish for sentiment when the VIX declines.
Cboe Volatility Index ($VIX.X) showing MACD crosses.
Cboe Volatility Index ($VIX.X) showing MACD crosses.

Oil Keeps Falling

Even as the S&P 500 bounced, crude oil hit a new 18-year low on Monday. The commodity was under pressure before coronavirus shut down global travel. It’s only has gotten worse since.

The decline in oil could have several effects. It depresses inflation and will likely keep a lid on interest rates. That, in turn, makes it easier to justify buying stocks with higher multiples like technology and healthcare.

The collapse in fossil fuels could also help focus investor attention even more sharply on newer innovators like Tesla (TSLA). Market Insights will keep watching themes like 5G networking, cloud-computing and solar energy.

Finally, cheap oil reminds everyone that gross domestic product is probably shrinking. That remains a big negative for economically sensitive sectors like small-caps, financials and industrials.

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