Netflix Lesson in Momentum

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In the first half of this year, there were few stocks that garnered as much attention and envy as Netflix, symbol NFLX. The percentage chart below shows why. Over the span of two and a half years, it soared about 1600%.

0915-nflx-up

I am not a "momo" stock person, although obviously fortunes can be made by riding the likes of Netflix. There is another side of this, of course, and today's sharp drop in NFLX prompted me to write this post – – momentum always ends, and it obviously it painful for those who bought NFLX at its peak price over $300 just a few months ago. Take a look at the percentage change since then.

0915-nflx-down

It's particularly interesting to see that although Whitney Tilson covered his massive short in NFLX well before the peak, the current price is well beneath even the levels at which he covered.

Setting all that aside, it's pretty evident that the broad uptrend in Netflix is broken. I don't trade this thing in either direction, but if it were to muster its way back to around $200, it would be well worth considering as a short candidate. Until that time, view this chart as an object lesson in what happens when momentum runs out of any market. (And, judging from tonight's action, long-ago favorite RIMM appears to be proving this as well).

0915-nflx-trend