One of the Best Ways to Spot Trading Opportunities

You’ll often find opportunity in the most hated stocks.

Look at Netflix (NFLX), for example. For weeks, the stock was beaten silly over fears of subscription growth concerns, and poor earnings forecasts. Analysts began to reduce their price targets, given uncertainty. Morgan Stanley lowered its target from $450 to $400. UBS lowered its target from $420 to $370.  Goldman Sachs lowered it from $420 to $360.

The pile-on effect of negativity was overwhelming, sending the stock from $380 to $252.

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However, with all of that fear already out, there was a good chance a lot of it was priced in. Even the herd told us there was far too much fear just as they did with prior pullbacks. 

Technical analysis told us that. 

Just as with all other extreme pullbacks, once the stock fell to its lower Bollinger Band (2,20) with oversold extensions on relative strength (RSI), MACD, and Williams’ %R, we could tell there was just too much fear in the stock.

While others ran from the stock out of fear of further decay, technical told us to stick around.

Those that followed the indicators were quickly rewarded, as the stock exploded nearly $23 on earnings many were overreacting to. 

And, as it turns out, earnings weren’t so bad after all. The herd overreacted -- again.

EPS came in at $1.47, as compared to expectations for $1.04. Revenue of $5.24 billion was slightly below forecasts for $5.25 billion. Domestic paid subscriber was 517,000, as compared to expectations for an addition of 802,000. International paid subscriber counts jumped to 6.26 million, as compared to 6.05 million-estimates.

For the fourth quarter the company expects EPS of 51 cents a share on revenue of $5.4 billion.

And in a letter to shareholders, Netflix addressed the issue of streaming services, noting such services will be “noisy” and could generate “modest headwinds,” near-term, as noted by CNBC.

“Many are focused on the ‘streaming wars,’ but we’ve been competing with streamers (Amazon, YouTube, Hulu) as well as linear TV for over a decade,” the company said, as quoted by CNBC. “The upcoming arrival of services like Disney+, Apple TV+, HBO Max, and Peacock is increased competition, but we are all small compared to linear TV. While the new competitors have some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world.”

Sometimes, it’s best to avoid the excessive fear of the herd.

And many times, it’s best to take your trading queues from technical trading tools.

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