Talking Numbers

What's good for Netflix users may not be good for investors

What's good for Netflix users may not be good for investors

Good news for Netflix users.

The streaming content provider announced a deal Tuesday to pay Verizon to upgrade its connection to Verizon's 9 million cable customers. This is the second deal Netflix has struck with an Internet provider to ensure better quality.

In February, Netflix struck a deal to upgrade its connection to Comcast, parent company of CNBC.

But is what's good for Netflix customers good for Netflix investors?

While Netflix's downloading speeds may be increasing, returns for its stock in 2014 have not been. Shares in the company are down 13 percent this year.

(Read: )

Steve Cortes, founder of Veracruz TJM, is enthusiastic about the deal and about Netflix's stock.

"One of the biggest hurdles for growth for Netflix is this broadband issue," said Cortes. "They seem to be solving that issue. These have been tough negotiations. The providers were reticent to provide this bandwidth but the fact that they've reached a deal is significant."

Cortes is also bullish because he sees momentum stocks like Netflix and Twitter, which he owns, turning around. "Everyone was euphoric and loved Netflix at $450," he said. "Now they hate it at $300. When they're crying, I am buying. There's been a lot of crying lately in Netflix and I think it can recover from here."

(Watch: Content creation is a 'crappy' business: O'Leary)

Richard Ross, global technical strategist at Auerbach Grayson, is not keen on Netflix shares based on its charts.

"We have a clear sign of technical erosion," said Ross, a "Talking Numbers" contributor. "You don't want to get complacent in a stock that's up over 750 percent in just over 18 months."

Ross sees a head-and-shoulders pattern in the stock's one-year chart, with the "right shoulder" of the formation breaking below the stock's 200-day moving average in recent trading sessions after the stock's earnings numbers were released.

"That tells me that investors sold into that good earnings print," he said. "That's a bearish headwind."
For Ross, Netflix's four-year chart shows why current levels are significant. Share prices are getting close to the $300 level, which was near the stock's 2011 peak. That price has now become a critical support level, according to Ross.

"Any break below $300 needs to be sold aggressively," said Ross. "If you like the pullback and you want to buy the name here, keep that stop at hand. Do not own the stock below $300."

To see the full discussion on Netflix, with Cortes on the fundamentals and Ross on the technicals, watch the above video.

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