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Netflix Sinks But Shows Bullish Pattern As Dow Jones, Small Caps Gain

Netflix sank for the third time in four sessions but limited its weekly loss to 3% as blue chips and smaller-cap companies paced the upside in stocks today.

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The Russell 2000-tracking iShares Russell 2000 (IWM) ETF was virtually flat, and in late-hour trading the S&P SmallCap 600 showed a slight drop of less than 0.1%. The Dow Jones industrial average rose 0.4% on the back of as many as eight of its 30 components rising 1 point or more.

At 3:45 p.m. ET, the S&P 500 advanced marginally, up 0.1%. The Nasdaq composite edged up less than 0.1%. But at 7828, the premier index for growth companies held a superb 13.3% year-to-date gain. In 2017, the tech-rich composite rose 28.2%.

Netflix (NFLX), the global online video streaming giant, dropped more than 4% and marked a session low of 395.08. Volume was running roughly 70% above its average pace. The sell-off comes on the eve of its second-quarter results due on Monday after the market close.

Such sell-offs are common in widely followed companies. Sometimes, as noted in historical narratives on Wall Street, large players seek to shake some investors out by selling the stock hard ahead of important news.

Is this the case again with Netflix?

While no one can say so with 100% certainty, the company shows both fundamental and technical reasons why it still attracts heavy institutional sponsorship.

On the fundamentals side, earnings per share have soared 114%, 567%, 67%, 142%, 173% and 60% vs. year-ago levels in the past six quarters.

Outstanding profit growth is not expected to end anytime soon. The Street expects Q2 earnings to drive 427% higher to 79 cents a share.

Analysts on Wall Street see Netflix’s revenue, up 33% and 40% vs. year-ago levels in the prior two quarters, ramping up another 41% to $3.94 billion in the June-ended quarter and up 38% to $4.13 billion in Q3.

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Second, notice on a weekly chart how the stock got challenged by sellers in March and April, but overcame these sharp declines and found support at or near the key 10-week moving average.

The 10-week moving average can offer an excellent entry point after a proper breakout from a good base pattern. It tracks a stock’s average weekly closing price over the past 10 weeks. When a market leader pulls back to this line, drawn in red on IBD and MarketSmith charts, it usually attracts fund managers who seek to add to their positions and share high conviction in the stock’s long-term future.

Also, notice how Netflix recently staged a run of five weekly gains in a row. That’s unusual strength, and a common trait among true market leaders.

Netflix shows solid ratings on Stock Checkup, including a 97 Earnings Per Share Rating, a 98 RS Rating and a B for Accumulation/Distribution over the past 13 weeks.

The company has joined IBD Leaderboard as early as July of 2014.

Read more news on Netflix and other FAANG companies here.

The Medical Sector Is Shining Brighter

Elsewhere, Integer Holdings (ITGR) gapped up and rose more than 7% in heavy volume to 73.45. The medical products industry group member is featured in IBD Stock Of The Day.

Integer grew earnings by 49% to 61 cents a share in Q1. This meets the C (current and recent earnings growth) in IBD’s CAN SLIM seven-point investment paradigm. That also marked the biggest EPS gain in at least four years. Revenue accelerated 11% to $381.8 million.

The Street sees Q2 earnings rising 39% to 86 cents a share.

Integer stands as a small-cap growth stock with 32 million shares outstanding and a market value of $2.3 billion.

RH (RH), which joined SwingTrader on Friday, rebounded more than 6% in fast turnover. The luxury home interior goods chain has faded for three weeks after a huge move up in mid-June on better-than-expected quarterly results.

The Corte Madera, Calif., company effectively downplayed the impact that U.S. tariffs on Chinese imports, including furniture, would have on its overall sales and earnings.

Please follow Saito-Chung on Twitter at @IBD_DChung for more commentary on growth stocks, charts, buy points, and sell signals.

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