Yahoo! and Netflix: A Tale of Two Growth Stars

Shares of Yahoo! (NASDAQ: YHOO) pulled back by more than 3% ahead of trading on Thursday. shares of Netflix (NASDAQ: NFLX) soared by more than 11%.

And talk of mergers and new CEOs notwithstanding, here’s the question: which stock is more likely to be higher a week from now – and which stock is likely to be lower?

Heading into trading on Thursday, shares of Yahoo! are not extremely oversold. After dropping by 3% above its 200-day moving average, the stock is only at 5-day closing lows. And with a positive edge still just over half a percent and a neutral rating of 6 out of 10, it may actually take more selling in Yahoo! before enough traders are convinced to enter the market as buyers. Note how multi-day pullbacks in the stock in the middle of the past three months have allowed short-term traders to buy weakness and sell strength as Yahoo! rallied from brief corrections.

Netflix, on the other hand, already has buyers piling into the market. Up double-digits on Wednesday, shares of NFLX are already trading at levels where, historically speaking, traders have looked to sell the stock. Consider previous rallies into overbought territory in November and October, when new, short-term highs in particular typically led to new, short-term lows.

The bounce higher in Netflix has created significant negative edges in the stock – due both to the stock’s overbought status well as the fact that NFLX has been trading in bear market territory since September. Wednesday’s rally also meant that NFLX was downgraded a point and is newly among our “consider avoiding” stocks ahead of trading on Thursday.

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David Penn is Editor in Chief of TradingMarkets.com.