NFLX – Hell Yeah!

I would be doing great disservice to myself if I did not take a moment to recognize my recent most accomplishment.

As we speak, NFLX is back over $200 in after hours. It has been added to S&P 500. Think of this ceremonious event like a British groupie watching a royal coronation in London except that this is “500” times better.

Speaking of the stock, I nailed this shit so many times it is not even funny.

Past posts follow, not including my twitter updates and posts before all these posts:

Post 1 – Started explaining my calls on NFLX after posting Twitter updates to trades.

Post 2 – Expounded fundamental reasons behind company’s strength. Explained technical reasons for intermediate term strength.  This is where I first highlighted analysis on possible inclusion to a major index.

Post 3 – Parsed out recent short term weakness and predicted next move.

Post 4 – Reiterating Intermediate term buy with some technical reasons.

Post 5 – Reiterating Intermediate term buy.

Post 6 – About reading between the lines on spins put on insider selling and doing your homework on SEC Form 4 filing.

Next Steps

Unlike the giddy mommy’s basement trader crowd, I am actually looking to sell some in the strength over the course of next few days or sooner. Addition to S&P is positive for short term only and does not guarantee long term performance in the least bit. I will follow up with a detailed post with my analysis and if you are interested, advice on what you should do if you are in it or if you are looking to get in it.

Hallelujah

StocksRider

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The following is my rendering of what may have happened just minutes before Ben Bernanke’s interview with CBS past Sunday

Time – 60 minutes before the 60 minutes interview. Scenario – Ben sitting with Agent X and going over interview prep. Agent X is a secret top member of the Plunge Protection Team.

Agent X: Hey Benny. This is your big break for the 11^th time now. Don’t mess it up this time.

Ben: I won’t. I learnt crucial lessons from my last dozen interviews or so. I have published a thesis on how to prevent a fiasco during financial interviews. Now that I have the thesis, I obviously can’t go wrong this time.

Agent X: Permission to speak frankly?

Ben: Sure.

Agent X: Fuck the thesis.

Ben: Excuse me?

Agent X: You heard me. Fuck it. You should know – that shit doesn’t work.

Ben: Okay then what do you propose I should do?

Agent X: You may think I have a bias here because I don’t understand your goobledygook, but let me tell you – You work on how you present yourself. You see you quiver like a fucking meth ridden kid. Your voice is perpetually shaky and nervous as if you were just caught with your pants down at the Atlantic board walk getting some from a hooker. You see Ben, peepz get a wrong idea. They think you don’t know what the hell you are talking about.

Ben: Well, actually I don’t….

Agent X (closing his ears and shouting): No, No, No! I don’t want to hear!!

Ben (stops and then starts talking again): Okay. But it is not my fault my voice is shaky and I can’t do anything about it.

Agent X: Okay listen. I know you had this dorky girlfriend Debbie back in Princeton who used to wedge a joint up your wazoo and stick one in your mouth and then make you smoke from both ends. That kind of stuff can leave someone permanently disabled. You got a shaky voice and shaky lips for life. So what? It’s not your fault. But we gotta address it man. We can camouflage that shit.

Ben: How?

Agent: Just keep speaking at your highest pitch and pretend as if the shaky voice doesn’t even exist.

Ben: Fuck. That is brilliant! Why didn’t I think of that before?

Agent X: Because you forgot to put it in your thesis.

Ben: Oh.

Agent X: All right now lets go over the questions.

Ben: Sure (Opens his briefcase)

Agent X: No you don’t need your stupid briefcase. We are going to dumb it down like no Fed Chairman has ever done before.

Ben: Sounds intriguing

Agent X: There are only four questions you should worry about – (a) Will we be hit by recession? (b) Will we be hit by depression? (c) Are we creating inflation?, (d) Is Unemployment going to remain high?

Ben: oh goodie! I know the answers to these.

Agent X: Go ahead…

Ben: I believe that when we extrapolate the current economic indicators and reconcile with the global credit contagion, within a few months…

Agent X (interrupting): Ben

Ben: What?

Agent X: Are you fucking with me? You are on prime time. First, no one will get your answer. Second, the markets will tank on Monday. Your answer to all the four questions is a simple “No”!

Ben: Oh okay. I get it.

Agent X: You can of course flavor your “No” with different forms of No such as “If we are up to the fiscal challenges, we will not….”, “So long as we buy the bonds, we will not…..”, “So long as we extend the tax cuts, we will not….”. Oooops…scratch that last one. I thought for a second Bush is still around. But you get the point, right?

Ben: Yes I do now. But I cannot spin the unemployment thingie. It is too damn obvious.

Agent X: Okay then just be confident and continue to speak at the highest pitch when you talk about unemployment.

Ben: How is that going to help shroud the shitty unemployment projections?

Agent X: Ben, let me tell you something. When someone says “I suck” and he says with utter confidence without blinking an eye lid, people actually think he doesn’t suck

Ben: I should have taken Psych 101 at Princeton.

Agent X: You should have.

Ben: Hey what if they ask about Banks making all this crazy money and not lending a penny?

Agent X: That is simple. This is where you use your gobbledygook, neither-here-nor-there crap. Use words like “balanced”, “prudence” and you are good to go.

Ben: Got it.

Agent X: Good. And one more thing.

Ben: Yes?

Agent X: This time don’t talk about your home town. That shit you did last time was gay.

Ben: Got it.

Agent X: Great! I gotta say you are a quick learner.

Ben: Thanks for your help. I think I am going to put these valuable lessons I learnt from you in a thesis.

Agent X: Good for you. Don’t put my fucking name down.

Ben: I don’t know your name.

Agent X: Oh that’s right. You don’t. I am fucking good. All right let me quiz you and see if you really got it. Pretend that I am the interviewer. (in a male husky voice) Are you printing money?

Ben: Of course not.

Agent X: Attaboy!

Agent X presses a button and he disappears in thin air.

——————————————————————————————————-

Reported by,

StocksRider

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Long time Readers know I am long Netflix over intermediate term from trading perspective.   I had also correctly anticipated the short term consolidation that is currently underway, in prior posts including the most recent one.  From a long term perspective, it is too rich right now but a terrific company to own should prices come down a bit.

But this post is about something different. This is about all the bearshitters like ZeroHedge who, using their negative bias, put what I believe an almost unethical spin on facts. Of course a lot of wise readers already know this about ZeroHedge and their deviations from facts.  But there are times when it is tough to swallow the amount of spin coming out of simple and plain facts. The spin on NFLX CFO’s insider selling is one such incident where I couldn’t take it anymore. I am writing this to correct facts.

First the story.

Couple of days ago ZeroHedge website wrote about the selling of 100,000 shares by Barry McCarthy, CFO of Netflix. The article went on to hypothesize how insider selling such as this is a harbinger that the top insiders themselves are not confident about the stock. There were a few other website and twitterrers who publicized this exhaustively without giving details about the filing itself. This news caused a semi-panic with retail investors and trades who started selling. The sell-off was further exacerbated when Cramer said to sell half of the NFLX portfolio. Of course Cramer said it from a prudence point of view only. But it did not help either.

I myself believed the hype from a long term perspective, until I actually took the pain to investigate the SEC Form 4 filing. What I found was shocking at least to me.

Here it is for your pleasure, an exposure of another spin by ZeroHedge.

First here is the Form 4 filing link that covers the CFO’s sale. I have pasted some of the relevant parts as pictures below.

Figure 1:

Figure 2:

Notice the column highlighted yellow in Figure 1. This column depicts the amounts and foot-noted auspices under which the shares/options were processed. You can see that each amount is footnoted with the number “1”. This number stands for Transactions made pursuant to “Duly Adopted Trading Plan under Rule 10b5-1(c)” , as illustrated in Figure 2.

For those who don’t know what Rule 10b5-1(c) means, SEC made this administrative ruling where insiders could create a trading plan in advance of a trade if they set a specific date or price at which to effect a transaction (either a purchase or a sale); when that event transpired, it triggered the trade. These trading plans are known as 10b5-1 plans. The trigger could be a price threshold too.

I hope the dust is clearing from your eyes as we speak. If you are still with me, the obvious two conclusions are as follows:

1. The CFO committed to this trade as part of a pre-set systematic method of selling shares that is very common for executives of any publicly traded company to do. He did NOT have any conviction in this sale in terms of lack of confidence. And of course he did not have any material information. This was a programmed sale.
2. Notice that the sale was triggered when the stock hit $200. This is in fact the event that the CFO seems to have set as a criteria in the past, before November 30^th , when setting up the trading plan under the 10b5-1(c) rule.

For those skeptics who have been saying this happened outside the regular insider trading window of NFLX, read your fundamentals. When a trading plan is set up under 10b5-1(c), because of its very nature of making insider information irrelevant, it can be carried outside of trading windows. Again a very common and regularly occurring phenomenon with most publicly traded companies.

Bottomline – I believe ZeroHedge fucked with many of you. The CFO insider sell is not at all a sign of lack of confidence but a prudent plan set up in advance to sell some of the shares when a threshold limit reaches.

Good luck

StocksRider

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Good to smell the hallowed corridors of royalty once again. I believe Monsieur Le Fly declared that being the King in the month of December is one of the highest honors. Who am I to disagree with him?

The StocksRider portfolio is making a new high, thanks in part to positions like NFLX, CREE and recently sold positions in DLTR, FDO. Also my losses in CRM short taught me some important lessons in risk management that I believe were as valuable as the profits I could have made. Plus the grapes are fucking sour. No…really! Grapes ARE sour.

You can find my recent posts in the regular Peanut Gallery here in case you are seeking continuity or want to see my past performance, or you just can’t get enough of me.

Couple of days ago, I indicated in my last post that we will soon enter a trading range of sorts just like how we did during summer. Yesterday I was going over the other blogs on this site and to my amazement, Scott B made a similar observation! Considering am a big fan of his posts, this was very reinforcing.

Current Strategy

I was skewed way too much into longs. But I made a series of trades in the last 48 hours that have made me lot more comfortable as I hedged my positions. As always, I post my trades close to real time in Twitter.

Current Positions

Longs – NFLX, NTAP, AKAM, CREE, GRMN, SPY, Q

Shorts – WFR, EXPE, TINY, UGP

A Note on Qwest

Q has two things going for it. December seasonality shows Q giving solid returns based on The PPT screeners. Also December 1^st was the ex-dividend date for Q. Normally you would suspect the stock should go down right on or after the ex-dividend date. Q managed to hold up. That to me is a healthy sign. It seems it may very well be on its way to record another positive December.

A Note on Netflix

Long time readers know I have been long this stock for quite a while and expounded my theories here, here and here. Today’s downward move didn’t make that much of a dent for me.

There are a couple of things perceived to be going against NFLX besides it’s over rich valuation. (The valuation doesn’t bother me as much since I am not in NFLX for long haul even though I think it is a terrific company):

First, it became technically overbought couple of days ago. Back then, I wrote in the comments section of one of my prior posts on NFLX to expect seeing it go down a bit and consolidate its base. I believe that is what is happening right now.

Second, substantial insider selling occurred this past month, which may have given the impetus to the last two days’ selling not to mention Cramer insisting on his show too to sell half now. The most publicized insider trading was the CFO selling 100,000 shares on November 30^th. I think that should not be ignored by long term traders and investors. However intermediate term, it is not that much of a cause for concern due to momentum supporting the stock along with a whopping 20% short float. So let’s put the CFO sales in that perspective. 100,000 represents 1% of the overall short float that is currently at appx. just over 10 mill shares. In other words, not only will the current short interest absorb the CFO’s shares and other directors’ smaller quantities from this past month but also will continue to sport a plus 15% float even after covering the CFO and past month’s sales. Add to it the fact that we may have a whole bunch of new short sellers from the last two days judging by the stream on Stocktwits. This all contributes to possibly another explosive rally sometime this month.

On the flip side, 188-190 forms a major support level based on the open interest configuration. I will be selling all or major part of my position if we break that level.

Bottom line, NFLX likely has a lot going for it to remain in an uptrend in intermediate term even if it consolidates in the short term. I wouldn’t hold it for long term though at the current valuation levels especially if the insider selling continues unabated.

Looking Ahead In General

Normally Decembers are a safe bet for a dart throwing monkey market. I am going to be extra agile because of the choppiness I expect to see this month not to mention some wild swings right after December 10^th. More on that later. In spite of the choppiness, the 3-6 month timeframe still looks bullish to me.

Good Luck

StocksRider

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Like all good things, this one is my last post as the King of Peanut Gallery. Tomorrow I may rejoin the masses at Peanut Gallery and play death matches with villains punching one-star rating on my posts.

I must confess though. I loved being the King. In fact if you have any sense of courtesy left, I would like to be addressed as the King forever.

Regular readers know my calls on market movements have been fairly on the money in the last few days, with me pressing largely on the long side.  As always, I log my calls and trades close to real time in Twitter.  Today, as a special treat, I am going to deflect from my usual style of talking only about short term. I want to leave you with thoughts on four different time fractals.

But first, you all know about US creating the QE2 shit. You all know about Europe being in shit. And you all know about Japanese not being able to do shit. I believe these factors may contribute in different ways depending on the time horizon.

Short Term (2 days – 1 week)

Momentum is God. Right now no matter what your left brain says, you got to respect the momentum. At the same time we are possibly seeing the end post at horizon. The markets should remain in upward momentum for few more days. I am placing my bets around October 7 or 8^th with the NFP report acting as a probable catalyst for reversal momentum. For now, talking heads will use QE2 as their excuse to continue to go higher. In fact they will use QE2 as their excuse to eat the crappiest hot dogs, cheat on their partners, pick boogers in public and dabble in witchcraft.

Another reason why we may see continued momentum is because of Mommy’s basement trader. He is still bearish and not fully on with the program. In the past, the big boys had two sources of gullible idiots to loot from – Popcorn Investor and the Basement Trader. The Popcorn Investor seems to have disappeared from the market.  If that is indeed true, the poor basement trader is the lone insect caught in the web left to be pillaged. And until the bitch remains bearish, we will continue the uptrend. Another more quantitative example is the CBOE equity put/call ratio. It is by no stretch in panic territory.  It is at an elevated level though. Around the peak in April we saw the P/C dropping to less than 0.4. We are currently at 0.55. Yes the markets have sometimes bottomed around these levels too. However, what I am trying to point out is the fact that if the markets want, they still have more fuel to run simply based on the fear present in the market. Similarly, there are a few more indicators that are flirting with extended levels but can comfortably remain there for few more days.

Finally, my more esoteric indicators – the solar and lunar cycles are shining green too for few more days.

Intermediate Term (2 weeks – 2 months)

Momentum will be screwed by God. Let me explain. Everyone knows the ugly side of the macros. As far as I am concerned, here is the rub. A full knowledge of the ugly side of macros doesn’t move the markets. A news event, a macro report or a governing decision that confirms the ugly side of the macros is what moves the markets! In the intermediate term, I am confident we will get that catalyst. And when we get it, the markets will be ready to tank. I would guess that it could either coincide with the October 8^th date or may come shortly thereafter. Possible catalysts could be NFP, more credit contagion coming from Europe, QE appearing to lack fire power, delay in QE, one of the states or Sovereigns going ape shit default, currency wars creating major resistance, etc.

Long Term (2 months – 12 months)

Momentum is moot.  Keeping that aside, long term can drastically change based on new events.  My wild guess is that we shall see a resurgence of bulls.  This is assuming the bigger dropping shoes are discovered in the intermediate term. The reasoning is straightforward to me. It won’t be 2008 anymore as far as discovery of hitherto unknown credit problems or non-quantifiable risks are concerned. In other words, we will not see the same intensity of Nasty, even if the markets continue to drag a bit initially. That alone could contribute to a big but docile wall of worry with a “climb and fuck me” sticker on its back.

Long-Long Term (9 months – 2 years)

I believe that it is in our nature to worry and talk about the worst, because of a simple fact – we all are first grade melodramatic bitches. You hear about all the shit that is going to happen to the world. I pose before you a question – do you hear anyone chatting as much about a new disruptive technology taking shape and breaking barriers in the next two years? Do you hear about how a surprise big impact bio tech drug or the end of a dictatorship can move the markets? Exactly! So who carries the element of surprise? Not saying that I am bullish or bearish over long long term, but it is thought provoking, isn’t it?

I am not married to any of the above thoughts. I will adapt if future veers from my crystal ball. At the end of the day, ideas don’t make money. Discipline and action do.  That being said, it is still worth pondering.  Because ideas inspire action and the discipline.

StocksRider

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Think about it. What has a bigger element of surprise? Unexpectedly low GDP or In-line/Good GDP? It is the latter. In other words, bears have more to lose in an upward momentum environment.  Lot of people are pressing their shorts right now in the final hour. Imagine the short squeeze tomorrow morning should we get anywhere between 1.6% (expected) or above.

StocksRider

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