Netflix May Have Just Killed The Big Stock Market Rally

Stocks fell today with the S&P 500 dropping by about 35 basis points, while the QQQ ETF dropped by around 70 bps.

NASDAQ (QQQ)

The QQQ continues to move towards the lower end of the trading channel, which suggests there are more days of declines ahead for the ETF.

Netflix (NFLX)

More importantly, Netflix reported weaker than expected results, with revenue beating and earnings missing estimates. The big story was that guidance for the third quarter missed, with revenue guidance of $6.32 billion, versus estimates for $6.39 billion, a rounding error. But subscriber additions were expected to be around 5.4 million. Instead, guidance was for 2.5 million.

But more significant was the one line in the release that I fear is something we may hear from many of these stocks that have had monster runs: “However, as we expected, growth is slowing as consumers get through the initial shock of COVID and social restrictions.”

Growth is slowing; something a growth investor never wants to hear from their growing companies. It could very well be a trend we see across the spectrum of technology stocks that have seen a big run-up. The message, the easy benefits from the pandemic, has been made; it will get harder going forward.

For now, support for the stock is around $450, and resistance around $480, I suspect the stock has further to fall, beyond $450.