The Netflix Horror Show Continues

In Wednesdays huge rally that saw the Dow Jones Industrial Average climb almost
500 points, just about every stock in the world increased in value. But there
was one that couldnt find any interest from investors Netflix (NASDAQ: NFLX ),
which closed off 4.5% to $64.53. And this came off a 3.4% drop Tuesday, when the
markets still were in bull mode. The seemingly inexplicable fall has occurred
despite recent optimism from analysts. For example, Susquehanna Financial Groups
Vasily Karasyov improved his rating for NFLX shares from negative to neutral.
And hedge fund manager Whitney Tilson told Barrons that he believes Netflixs
stock will double over the next few months! But with the recent losses against
the broader markets not to mention the almost 80% haircut to NFLX shares since
mid-July its going to take much more than upbeat analysts to make investors
confident in Netflix. Consider that the company, in a desperate grab for cash to
go toward providing better content, recently raised $400 million by selling
stock and convertible notes, illustrating NFLXs serious cash flow issues. And
that move was made to stave off increasingly serious competition from operators
including Hulu and Amazon (NASDAQ: AMZN ). Not to mention, Netflix also has to
get a sense of the cash-flow impact for next year. If its content continues to
lag and its membership base continues to shrink, the consequences for NFLX could
be severe. Still, the most damning sign of Netflixs problems remains the stocks
recent trading activity. Whenever the markets experience a huge rally and a
particular stock sits the bench, it often is evidence of tremendous weakness.
The situation looks more dire when that stocks value already has taken a huge
dip. So despite being at lows not seen since early 2010, NFLX still could be a
toxic holding for investors. Tom Taulli runs the InvestorPlace blog "
IPOPlaybook ," a site dedicated to the hottest news and rumors about initial
public offerings. He is also the author of "All About Short Selling" and
"All About Commodities." Follow him on Twitter at @ttaulli . As of this
writing, he did not own a position in any of the aforementioned stocks.