Thursday, October 16, 2014

Shortly after midnight, DaBoyz were struggling to restrain a powerful short-squeeze rally, lest stocks get overbought ahead of the opening bell.  The news on all fronts is  probably as horrific as it's been at any time during the last 100 years, but this is not necessarily going to dampen the ardor of short-covering bears who were left hanging on the ropes by Thursday's bull-less bounce. The outcome for today is well-nigh unpredictable in any case, so we won't try.

The rally from yesterday's lows was 110% short-squeeze, and it appeared to be getting second wind late Wednesday night. The Ebola story could come back to haunt buyers, but in the meantime DaBoyz have done what they are wont to do to offset the drag. Mainly, this meant pulling their bids during the 15-minute run-off period after the closing bell. This allowed them to take this vehicle down the equivalent of 170 Dow points on almost no volume, exhausting sellers. This in turn has allowed DaBoyz to run up stocks in the wee hours on gaseous buying. My hunch is that this manipulation will succeed if it doesn't try to be too ambitious. Regardless, there is no predicting the outcome of what promises to be a wild and wacky day.

I don't often come to NFLX's defense, mainly because their streaming catalogue sucks, and because their vaunted film-selection algorithm long ago lost its ability to pick movies that I might find especially entertaining. I also saw no particular genius in their recent four-picture deal with the very unfunny and untalented Adam Sandler, although a reader pointed out that even Sandler's worst films -- I recommend 'The Waterboy' if you want to benchmark the concept of 'worst'-- seem to rack up pretty decent numbers overseas. That said, yesterday's selloff in after-hours trading seemed just a smidgen overdone. The stock gapped down $115 in the blink of an eye -- a 25% discount from the price that supposedly all-seeing, all-knowing investors, in their collective wisdom, had deemed perfect just hours earlier. There was a hit-piece out on the Web yesterday suggesting NFLX has too many aggressive competitors to carve out a solid niche. Although this is probably correct, they seem to know how to grow revenues globally, and the company's management is regarded by many -- my astute friend Steve Gilburne among them -- as having the best management team in the corporate world. Although the foregoing amounts to a mixed bag of plusses and minuses, on a purely technical basis the stock's plunge has not yet fatally damaged the bullish look of its long-term chart. The huge drop was bearishly impulsive, to be sure, but we'd need to see it take out the two numbered lows (see inset) before sounding Taps.  Our hunch is that if there's going to be a next great buying opportunity, it will not be by way of a catch-the-falling piano bid this time around, but on a subsequent, would-be correction of the next big bounce.