We decided to look at some momentum and technical factors between Netflix and salesforce.com. We decided on the following indicators to evaluate it due to their prevalence in the markets:
- Relative stock price performance over the past 12 months
- 50-Day and 200-Day Moving Averages
- Moving Average Convergence/Divergence (MACD)
- Stochastic Oscillator
We believe these technicals are relevant until Q2 results are reported on July 17th. This report will be updated in the weeks following the Q2 earnings release.
Recall our relative stock call remains that Netflix (NFLX-NASDAQ) will appreciate until July 2018. We believe if investors want to sell shares to buy Netflix, a good stock to do this with is Salesforce.com (CRM-NYSE) We look at both companies technicals.
Stock Performance:
As can be seen in the chart below, Salesforce is up 29% year-to-date versus Netflix up 23%. Assuming no change in fundamentals between the two companies, there is somewhat of a catch-up trade to be had.
EXHIBIT 1: Netflix vs. Salesforce Stock Price Change
Source: Yahoo Finance
Bullish Trend Winner: Netflix
50-Day and 200-Day Moving Averages
Netflix’s moving average has been calculated by increasing the most recent closing price by 2x. Neither NFLX’s nor CRM’s 50-day or 200-day moving averages give a strong buy or sell signal. Salesforce passed its golden cross in February/March while Netflix reached its inflection point a number of months before that. Netflix’s longer timne period with the 50-day over the 200-day and slightly reversing trend is showing a slightly more bearish chart here than CRM.
EXHIBIT 2: Netflix 50-Day and 200-Day Moving Averages
Source: Perspectec, Yahoo Finance
EXHIBIT 3: Salesforce 50-Day and 200-Day Moving Averages
Source: Perspectec, Yahoo Finance
Bullish Trend Winner: Salesforce (slightly)
Moving Average Convergence/Divergence (MACD):
The MACD Line has been calculated as the difference between the 12-day exponential moving average (EMA) and the 26-day EMA of the stock price. The Signal Line is the 9-day EMA of the MACD line. The difference between the two gives us the histogram where a positive value points towards a buy rating and negative towards a sell rating. Our EMA calculation increased the weighting of the most recent closing price 5-fold and doubled the second most recent closing price.
The MACD histogram shows a reversal in trends. On July 7th it showed its strongest buy signal since early/mid May 2017. Based on its past trajectory, we expect the bullish trend to continue at least until July 17th. While Salesforce’s MACD is also entering a bullish phase (histogram at 0.23), it’s signal is not as strong as Netflix’s.
EXHIBIT 4: Netflix MACD Histogram
Source: Perspectec, Yahoo Finance
EXHIBIT 5: Salesforce MACD Histogram
Source: Perspectec, Yahoo Finance
Bullish Trend Winner: Netflix
Stochastic Oscillator
For calculating the stochastic oscillator, we have used a 14-day evaluation period. The %K line is calculated as follows:
%K= (Current Close- Lowest Low)/(Highest High- Lowest Low)*100
The %D line is the 3-day moving average of the %K line and acts as the signal line. A reading above 70 would indicate that the stock is overbought and a reading below 30 indicates it is oversold.
Netflix recently moved away from being oversold, an indicator fueled by the tech selling spree. According to this method and our methodology, Netflix’s has shown a sell signal 46% of the trading days.
Over the past few days, the %K line is exceeding the %D line, indicating a rising trend and hence a buy rating. The chart plotting the movement of the %D line and %K line for Netflix since beginning of 2017 is shown below.
EXHIBIT 6: Netflix Stochastics
Source: Perspectec, Yahoo Finance
Looking at the same chart for Salesforce, we see a similar pattern with the stock being overbought 53% of the trading days this year. Over the past week, we have seen a declining trend with the %K line falling below the %D line. This is an indication to us that CRM is a relative sell versus Netflix.
EXHIBIT 7: Salesforce Stochastics
Source: Perspectec, Yahoo Finance
Bullish Trend Winner: Netflix
Conclusion:
We believe Netflix’s technicals point to a move higher. This is further confirmation that Netflix will increase in value. In particular we believe Salesforce is a large, liquid\good stock to sell in order to buy Netfli\x.
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For the purposes of complying with NYSE, NASDAQ and all Self-Regulatory Organizations, Perspectec Inc. has assigned the following rating system BUY, HOLD/NEUTRAL, SELL for the securities which are the views expressed by an analyst, Independent contractor, and or an employee of Perspectec Inc. The information and opinions in these reports were prepared by Perspectec Inc. or an analyst, independent contractor. Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Perspectec Inc. makes no representation as to its accuracy or completeness.
