Bears Buckle Down. $AMZN $NFLX

So, the market finds itself in correction territory once again. That’s when the averages are down about 10% but not yet 20% which would be a Bear Market.  

The most recent selloff is being ascribed to the ‘Facebook Data Breach’. But in late January when the market started to roll over it was fear of inflation, manifested in good job numbers. We were just getting that behind us when President Trump tweeted that ‘trade wars are good and easy to win’.  

The real question is whether or not these events are really the cause of the sell off, or when the market sells off do we just look around and pick what we think is the cause. 

Take this morning, AMZN was down, below 1400 at 11:30. Why? Well CNBC’s answer was that Trump was going after Jeff Bezos because of his ownership of the Washington Post. Clips were played of him saying exactly that. 

Problem is, those clips were old, like 2 years old. He didn’t say them yesterday. In fact they could have played those clips on March 18 when AMZN was ringing the bell over 1600. 

I believe sometimes the market sells off, takes a breather, gets a bit nervous for absolutely no reason. Then the sentiment changes. It can happen both ways, up and down. 

However, the Bears always know the reason because they have been crowing about them all along. I’m sure you could find lots of Bears on March 18th saying AMZN was overvalued. 

Being Bearish always sounds smart. Bears are all about you not losing money, about preserving your portfolio and about getting a better price. Bears like technical analysis or fundamental analysis because you can find a Bear case in either one. 

But making money trading requires that you take some risk, that you put some money in a few areas that don’t fully make sense and is not obvious. 

Josh Brown retweeted a David Wilson (@TheOneDave) chart a couple of days ago. In 2003 when NFLX was mailing DVDs out one at a time, it would have been hard to imagine that today NFLX would have a market cap bigger than GE. 

I didn’t see that coming, did you? 

You know who else didn’t see it, for sure? NFLX Bears. 

Skip Intro. $NFLX is Next up on your Watchlist.

Jim Cramer was on Fast Money Halftime today and said something that caught my attention. He said that one of the big knocks on Netflix USED TO BE that they were having to pay up for content, both original and otherwise. As recently as January, Michael Pachter of Wedbush continued to call Netflix a ‘House of Cards’ and that their purchases of content would sink them.  

Today NFLX was up on a note from Macquarie Research that raised the price target $300 to $330 and from neutral to outperform. They based this on subscriber growth and quality of content.  

I bring this up to show a flaw in fundamental analysis. Here an analyst in the past (maybe still now) has been bearish on a stock for the same reason that another analyst now says is bullish for the stock. 

Previously I have said there are flaws in technical analysis. If it was easy to call price movement based on technical analysis, everybody would be rich. Same with fundamentals. The truth is that we should all be skeptical of all the analysis. There is no guru that gets it right all the time. Most don’t get it right most of the time.  

What do I base my decisions on? First, I think that the macro trend is the most important. If the market goes up, most of the time that is a tailwind for other stocks. When consensus is overwhelmingly positive, that’s the time I’ll put on either a put spread or a calendar put spread and if there is a pullback in the market or the individual name, then I write credit spreads against them. 

I also love it when a name I am interested in pulls back for no real reason. For instance, I bought calendar call spreads in WalMart after its pullback and then added put spreads when it gets a little strength.  

As for $NFLX, I was already long May/April calendar put spreads. I rolled up and out on a few call spreads which I was able to do using the ‘custom’ strategy on my trading platform. I sold a March 16 260/270 call spread and bought a April 20 300/310 call spread in its place. I was able to pull 3.4 out of each set of contracts with this.  

I think the bull run in NFLX continues and I will keep buying calendar spreads on the way up.