For both Facebook Inc. (NASDAQ: FB) and Netflix Inc. (NASDAQ: NFLX), Wall Street has shown little in the way of excitement lately.
Just take a look at the daily chart below. Do either of these stocks look like they have a favorable outlook in the near term? Judging from the price action, both FB and NFLX are treading on slippery slopes.
$FB : Facebook Inc. ; $NFLX : Netflix Inc.
FB tumbled at the end of October from its all time highs above $80 a share after the company warned in its third quarter earnings report that shareholders should be mindful of the likelihood of increasing costs ahead.
For the past month, FB has essentially been trading in a range between $74 and $76, but yesterday the bears took the bulls by their horns and really stepped up the selling pressure, with FB closing at $73.33.
This is significant because it's indicative of the fact that the bulls have failed to gather the strength to push FB back up to its previous highs over the past several weeks. Additionally, the stock has only closed below $74 once since 10/17; this occurred on 11/3 when the stock finished the trading session at $73.88.
The chart for NFLX is playing out in a similar fashion. The stock took a nose dive in mid-October from over $440 a share after the company reported a slowdown in subscriber growth in the third quarter; it bounced back after trading as low as the $330s once Mark Cuban announced that he was adding to his stake at that price level.
NFLX has been trading in a range of roughly $375 and $395 since the end of October. Notice that the bulls were never able to reclaim the $400 level during this period. The bears likely picked up on this weakness and the selling came out in full swing yesterday, with the stock closing at $363.10.
Conclusion
For both FB and NFLX, the bears command control in the near-term, as -DMI is above +DMI for both stocks. We can also see that the ADX line has the potential to start rising, in which case a trending move lower is possible should the bears continue to dominate the bulls.
This case study, like others we have published, offers insight into the idea of shorting stocks to profit on price action weakness. The stock market doesn't wave a flag to let traders know whether the bulls or the bears have the edge in any given equity, but what we can do is study the charts and venture based on price action what the near term probable moves may be.