How Traders Can Exploit This Seasonal Netflix Stock Quirk

There's still some pessimism left to unwind on outperforming NFLX

Managing Editor
Feb 2, 2018 at 4:10 PM
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After reporting a fourth-quarter earnings beat last Monday night, online streaming service Netflix, Inc. (NASDAQ:NFLX) gapped higher, and hit a new record high of $286.81 one week later. But while the stock has since pared some post-earnings gains amid widespread selling pressure, data provided by Schaeffer's Senior Quantitative Analyst Rocky White suggests outperforming NFLX might still be the best FAANG stock to own next week. 

We already know that NFLX outperforms during the month of January, but the table below indicates the strong price action could resume as we head into the first full week of February. In a spin on the (admittedly frivolous) "Super Bowl indicator," data shows that NFLX is positive the week after the big game 90% of the time over the past 10 years, with an average return of nearly 4%. Not only is Netflix the best-performing FAANG stock in the week following the Super Bowl, but it's the only one of all five powerhouse stocks that made White's competitive list.

Week After Super Bowl SP500 Chart Feb2

But does the current outlook for NFLX support a continuation of this seasonal quirk? While the outperformer has garnered a decent amount of optimism, given its recent rally to record highs, there's still just enough skepticism lingering to support additional upside.

For example, of the 35 analysts following NFLX, 12 still call the stock a "hold" or "sell" -- and the average 12-month price target of $265.27 represents a discount to today's closing price of $267.44. This leaves plenty of room for bullish notes and upward price-target revisions to give the shares a lift.

Furthermore, while short interest has dropped 13.4% over the past two reporting periods, it still represents 5.2% of the stock's total available float. That means there's still some room for additional short-covering activity in the immediate days ahead.

For those expecting more short-term gains from NFLX, it's a good time to bet bullishly via options, now that earnings are in the rearview. Schaeffer's Volatility Index (SVI) of 35% arrives in the 29th annual percentile, as short-term options have priced in lower volatility expectations just 29% of the time in the last year.

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