Compared to everything else in the S&P 500 Index, Netflix (NFLX) has never been worth more than it is today.
Pretty remarkable in this environment.
In fact my friend Josh Brown was on CNBC on Tuesday talking about how “resilient” NFLX is. “I wanted to do something defensive… and so I bought Netflix.”
It’s a great story. And I love that Josh is talking about relative strength.
Right now, NFLX is like a beach ball underwater.
It’s ready to shoot up.
Let’s Jump in the Pool for a Demonstration
A long time ago, another friend of mine, Joe Fahmy, explained relative strength to me this way…
Hold a beach ball underwater. You’ll feel it pushing up against you as you force it down.
Let it go, and it shoots right up…
That buoyancy is relative strength.
When stocks are under pressure, we want to look for relative strength.
In other words, which stocks aren’t succumbing to the selling?
We look at sectors, or individual groups of stocks, in the same way.
Communications is one of those groups that are holding up the strongest, and remain above the prior cycle’s peak in January 2022..
The bellwethers that dominate the weighted Communications Index are Alphabet (GOOGL) and Meta (META). Together these two represent almost half the entire index.
NFLX is the third-largest component, with a weighting of a little more than 7% in the index.
Today NFLX closed at its highest level in history relative to the S&P 500:
This is a messy environment. But we are seeing leaders emerge. As far as sectors, Financials at No. 1 and Industrials at No. 2.
Technology and Communications are No. 3 and No. 4, respectively.
Healthcare, Staples, Energy and Utilities are after that. Those groups are right near their early 2022 cycle highs.
Meanwhile Materials and Consumer Discretionary are below their former 2022 highs. Real Estate, the worst of all sectors, is still nowhere near the prior cycle’s highs from January 2022.
Where is the leadership? And where is it not?
Netflix Is Everyday Life
Communications remains a leader. And Netflix is a major component, driving the whole group higher.
My friend Josh (we go way back) said on Tuesday that NFLX is more of a Consumer Staple than anything else.
I thought that was clever.
Humans brush their teeth every day. They drink beer. They wash their dishes.
And they pay for Netflix. It’s just part of everyday life.
He’s not wrong.
And the market is proving that out.
If Communications remains a leadership group, I believe NFLX can absolutely be a leader during the next phase of a bull market.
Right now, the stock is in a range and we’re watching closely. When NFLX can hold above $1,000, I’ll start to get interested.
And if this is happening, there are likely to be other stocks within Communications that are also providing us with opportunities.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs