Welcome back to Close Calls for the week of October 13 through October 17, 2014. They give you the trend, I give you the forecast.
The bull market had a little scare this week, though it may not seem little at present as we are still more than 5% below the high on the S&P 500. This is a bit awkward for me, since I promised to work in a reference to a contemporary song from whatever year corresponds to the closing price on the S&P 500 until it passed 2014. We came close, with the S&P 500 closing at “Party in the USA” (2010) back on September 19 – close, but no cigar. As we traversed most of the 19th Century and back this week, I've decided not to quibble over the particular year. I'm going with “Battle Hymn of the Republic.”
For the first half of the week, stocks were trampled like the grapes of wrath, having been driven nearly ten percent down from their highs by slowing global growth and a panic over Ebola that will probably seem a bit silly in retrospect, as the disease is very unlikely to spread to many people in the developed world. The lowest bottom came midday Wednesday, but it was Thursday afternoon's rally that restored hope. By Friday morning, traders' souls, or at least their wallets, were quick to answer, sparking an impressive rally.
Make no mistake, this was a snit, a panic, a confusion, a scare, and a chance for the perma-bears to come out and strut their unappealing stuff. It was not the start of a bear market.
Oddly, since this is a bull market, my real specialty seems to be picking stocks that are about to fall out of bed. I have explained recently both why Netflix is a great company (here) and why NFLX is (or, rather, was) a terrible stock (here). It should come as no surprise, therefore, that I like Netflix a lot now that its stock has fallen out of bed, as I suggested that it would.
I was only just told that Mark Cuban also began buying NFLX today, and I don't mind at all – there's plenty for both of us. Value sings, and there are always going to be people who will listen. The value of Netflix comes from the rising wave of cord cutting, as seen this week in the capitulation of HBO and CBS, which will now both offer standalone Internet-TV services. That said, be aware that this is still a speculative play.
My truth, or at least my keyboard, was marching on this week. Here's what I had to say.
Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.