logo

Netflix just entered a death cross, but one trader won't get bullish until it rallies 30%

VIDEO3:3003:30
Netflix just entered a death cross, and it could mean trouble ahead

The streaming wars is heating up, and Netflix has cooled down.

The streaming giant's stock has broken down since July, tumbling to its lowest levels since January. It's the worst performing stock in the communication services sector this quarter.

The slide may continue, says Bill Baruch, president of Blue Line Futures.

"As cliche as it sounds, the trend is your friend, and the trend is down on Netflix," he told CNBC's "Trading Nation" on Thursday. "Now, you have the 50-day moving average crossing below the 200-day moving average, and that's the death cross."

A death cross forms when a stock's shorter-term moving average moves below a longer-term moving average. It is a technically bearish signal that indicates a rapidly decelerating trend.

Netflix has fallen nearly 12% in August, and Baruch says the company has more pain ahead.

"It would seem there is lower to go here. In fact, if you really step back, I could not at this point become bullish on Netflix until it closes out above a trend line and previous highs at $380," said Baruch.

Netflix last traded above $380 in mid-July. The stock would need to rally nearly 30% to regain that level.

While Netflix stock is doing some buffering, another name is getting in on the streaming industry. Disney will roll out its streaming service, Disney+, on Nov. 12, with a subscription costing $6.99 per month, $2 a month cheaper than Netflix's basic service.

A new study by UBS, found the number of American customers intending to subscribe to the new streaming service is outpacing the company's initial targets. Once they sign up, the investment bank said, 57% of customers plan to cancel another streaming service.

Disney stock has risen more than 26% this year versus the S&P 500's nearly 17% rise. Baruch says Disney's positive performance can continue.

"I like Disney. Disney has set record highs this year, and last time I checked, that's a really good thing. There is a breakout that occurred and a gap higher. There's a floor right below that breakout, right about $130, so ultimately, I like being long Disney above $130. It does have a little bit of work to do to get out above the 50-day moving average, to really get the tape upbeat, but overall, I like Disney."

Gina Sanchez, CEO of Chantico Global, says Disney and Netflix can coexist, but the latter has some work to do before progressing.

"I think that it doesn't have to be one or the other. I think the magic number that everyone is landing on is 3. Most people are going to be willing to subscribe to at least 3 of these, so Netflix doesn't have to go away, but you have to look at this in terms of potential growth, and that's where the problem is," Sanchez said on Thursday's show.

Netflix's subscription price tag suggests to Sanchez that its explosive growth is behind it.

"You look at the fact that they've already penetrated the market in the U.S. at least pretty well, so their subscriber growth numbers have to slow, and I think they're going to struggle with that coupled with the fact that they are spending billions," she said. "Their estimated spend for 2019 is going to be $12 billion, for acquisition and new development cost, and that is now at $15 billion. That's not a great trend if you have falling subscriber growth, and you have a rising cost of acquisition growth." 

Netflix reports on its September-ending quarter on Oct. 18. Analysts expect revenue to slow to 31% growth in its third quarter, down from 34% in the same period a year earlier.

Disclaimer