The Paper Chase

I once had a law professor who was rather acerbic and mercurial. He intentionally had his students buy a certain casebook of common law cases which he despised so that he could teach "against it" all semester. His rationale was that he found it quite boring to use a casebook which contained court decisions he mostly agreed--That is how much he enjoyed argument, confrontation, and tension in general. 

In that spirit, I could have easily written about the plight of Tesla and how bearish Elon Musk sounded on the conference call last evening. I could also harp on this morning's early downside reversal in stocks amid yet another spike higher in rates as the 10-Year closes in on 5.0%.  Or, perhaps, the continued deterioration of corporate credit at or near multi-year, even multi-decade lows. 

Instead, I will discuss the strength in Netflix, post-earnings, as bulls clearly point to this name as evidence that all is well and the negativity is overdone. 

On the NFLX daily chart, updated below, we see the monstrous gap up this morning after the firm raised its subscription prices yet again. Headed into the earnings report NFLX was easily one of, if not the, worst performing mega cap tech leaders, losing its 200-day moving average with nary a reprieve on the move lower. 

And this morning's move, while exhilarating for call option holders, merely takes the stock up to a declining 50-day moving average (arrow, dark blue line). A sizable gap up in a down or corrective trend to a declining 50-day tends to be much more of a short setup than a long one, at least in the near-term until bulls prove that the move has legs beyond the one-off pop. 

True, in the QE/ZIRP world we lived we would often see these moves "V-shape" to new highs and ignore potential short setups and resistance. But, again, with the 10-Year within a stone's throw of 5.0% and bond bulls showing little humility it is only a matter of time before it dawns on certain folks that QE/ZIRP is firmly in the rear view mirror.