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Short this ‘cult stock’? Trader's case against Tesla

Shares of Netflix and Amazon have gotten severely punished lately. So will Tesla be the next famous momentum stock to drop?

Amazon shares got crushed on Friday after the Internet retailer reported a large earnings miss. With a 8 percent decline on Friday alone, the stock is down nearly 30 percent on the year. And for Dan Nathan of RiskReversal.com, this is more than a simple case of incremental information causing investors to reprice the stock—what we have seen, according to the trader, is a paradigm shift in how investors look at Amazon.

For Nathan, it all started when Amazon's CEO Jeff Bezos first brought up the prospect of drone delivery in December 2013.

"That was an 'aha moment' for investors," Nathan said Friday on CNBC's "Options Action." "Investors have exited the stock. They do not believe this story, at least they did before, [when they were] disregarding valuation."

He contends that something similar could be said about Netflix, which opened 26 percent lower after its most recent earnings report (the stock has since staged a bit of a recovery). The company said a price increase was partially to blame for slowing growth in new subscribers.


Nathan says this "self-inflicted wound" led Netflix investors to "wake up to certain issues about their financials."

When it comes to Tesla, which is slated to report earnings on Nov. 5, Nathan says the company could wind up in a "similar situation."

"This thing has lost momentum. We know what the market has done in the last week, but this stock can't rally here."


For Tesla, the connection between Amazon, Netflix and Tesla is clear.

"Three companies that were cult stocks, where valuation was disregarded the whole way up, but maybe with some self-inflicted wounds by the companies that got investors to wake up a little bit," he said.

Carter Worth, chief market technician at Sterne Agee, says the technical picture support's Nathan's point.

The three stocks "are virtually identical in the sense that they all have the precondition which is required for weakness, which is extreme preceding strength," Worth said. These stocks each "brought in a lot of people and lot of complacency, and then you start to reverse. Reversal formations are very real—they happen, and they repeat, and it looks to be happening here in Tesla. The downside is severe."

Disclosure: Nathan has no positions in Amazon, Netflix or Tesla.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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