In an already shaky market, the last thing long day traders needed was a media/tech giant taking a huge tumble, like $NFLX.
The stock’s price plummeted after it reported its first quarterly subscriber loss in ten years and a miss in expected earnings, read more on Yahoo Finance.
With some basic tape-reading skills, there were several day-trading opportunities to the long and short side with the help of one, specific ETF: the $QQQ.
But, before breaking things down further, let’s cover some basics and definitions around the ‘ETF’ and ‘$QQQ’.
An ETF is defined as: ‘Exchange Traded Fund’ and you can trade them with a broker, like TradeZero, daily as if it were a stock.
What is an ETF?
There are endless definitions of ETFs on financial websites, such as Seeking Alpha, who describe it as:
“ ETF, or exchange-traded fund, is an investment security that combines some of the attributes of stocks and mutual funds. Like stocks, ETFs trade intra-day on an exchange. Like with mutual funds, many ETFs seek to track the performance of a benchmark index, such as the S&P 500.”
What is the $QQQ ETF?
To better understand the $QQQ ETF see an excerpt taken from Investopedia:
The Invesco QQQ ETF is an exchange-traded fund (ETF) that tracks the Nasdaq 100 Index. Because it passively follows the index, the QQQ share price goes up and down along with the tech-heavy Nasdaq 100.
Passive management keeps fees low, and investors are rewarded with the full gains of the volatile index if it rises. But they also have to bear the Nasdaq 100's full losses when it falls. In this article, we explain how the QQQ ETF works and then consider the risks and rewards associated with trading the QQQ.
QQQ stock holdings are dominated by big technology-related companies such as Apple, Amazon, Google, and Meta (formerly Facebook).
Capitalizing on the $NFLX panic using the $QQQ ETF to day trade.
Undoubtedly, it’s a tough time for $NFLX and its long term shareholders as it plummeted with a major gap down from approximately $350 - $250, dropping more than 30% off its value.
It’s not all bad news. Whenever we experience large scale stock market volatility, there is always day trading opportunities to the short and long side.
The gap down was only the beginning of the $NFLX sell-off, providing a short sell opportunity from $245 - $212 as the stock declined a further 13%. It then bounced, creating a dip buying opportunity, to make 6% from $212 - $225.
But how would you know when to day-trade short and when to guess the bottom to trade long? This brings me on to talking about the $QQQ ETF a little more.
Using the $QQQ ETF to day trade.
As mentioned above, because the $QQQ is an ETF largely made up of tech companies, it was rattled by the $NFLX news which operates on its exchange.
In fact, if you look at the intra-day charts of the ETF and $NFLX together, the charts almost identically mirror one another in terms of pattern and price action (see above). This is a sign that the stock and ETF are trading in sympathy to one another.
Both $NFLX and the $QQQ ETF actually bounced at similar times, for example. When this happens, day traders can use one chart to predict the price action of another.
Example: day-trade long using an ETF (April 20)
The $QQQ hit its morning low at 10:09AM breaking out of its down trend and beginning to bounce. At 10:12AM $NFLX also hit its same low but a few minutes after. This gave you 3 full minutes – a lifetime in day trading time – to go long for the bounce.
Example: day-trade short using an ETF (April 20)
At 11:01AM the QQQ rejected VWAP signaling more movement to the downside. At 11:05AM $NFLX moved down in tandem. There were 4 full minutes to execute this day trade.
How $NFLX effected other sector-related stocks.
$FB, which also trades on the $QQQ, similarly followed sector momentum to the down side. Read more in this Yahoo article here. I’ve highlighted some key information below:
The share price of Meta Platforms (NASDAQ: FB) was sinking lower today, seemingly on no company-specific news. Instead, investors may be digesting several notes published by analysts yesterday and reacting to the Nasdaq Composite's broader drop today. Several analysts issued investor reports on Meta yesterday, with mixed opinions.
ETFs and $NFLX in Summary for day-traders
In summary, here are some tips and takeaway bites for future day trades:
- Monitoring the relevant ETF for the stock being traded can provide a day trader with a competitive edge in the stock market.
- An ETF can indicate long and short day trading opportunities as well as giving insight on overall sector or market strength and weakness for day traders.
- An ETF can also be traded to the long and short side in the same way you’d day trade a stock.
Thanks for reading and if you have any questions or comments hit me up on Twitter @Jonk87.
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