Trade idea of the day: Does the recent sell off provide any pockets of opportunity?

This week has been a week that US stock markets will be glad to see the back of. The Dow Jones has dumped over 100 points on two separate occasions and is now in correction territory. Meanwhile the US S&P is also in correction territory after falling 10% from its recent high, just two weeks ago. This is the first time that the S&P has had a drawdown of over 5% in over 400 days, the longest stretch in 90 years.

This week has been a week that US stock markets will be glad to see the back of. The Dow Jones has dumped over 100 points on two separate occasions and is now in correction territory. 

Meanwhile the US S&P is also in correction territory after falling 10% from its recent high, just two weeks ago. This is the first time that the S&P has had a drawdown of over 5% in over 400 days, the longest stretch in 90 years. 

These are some big records that we are seeing being broken as the global selloff in equities continues. The initial selloff came amid rising treasury yields as the prospect of great interest rate rises spooked investors, this has then been exasperated by automated and algorithmic trading. 

Traditional safe haven assets, gold and the Japanese yen are not displaying signs of increased inflows, with gold actually trading over $30 lower on the week. Fundamentals remain solid in the US with the labour market tightening, earnings and inflationary pressure expected to pick up. The Fed had been paving the way for 3 interest rate hikes this year. But even amid then record breaking sell off there could still be some pockets of opportunity. 

What: 

One such stock is Netflix. There could be many reasons to buy into Netflix at the moment, given its impressive fourth quarter results and strong outlook for the year ahead and huge global potential growth. 

However, another reason would be its low labour cost. Firms with low labour costs are likely to be insulated from higher earnings growth, a trend which is expected to take off this year. Netflix has just a 1% implied labour cost as a percentage of revenue. 

How: 

Netflix has outperformed the market so far this year, rallying 25% to $250 since the start of the year, whilst the S&P 500 is actually down 4%. Netflix has seen a pull back of 5.4% in the previous trading session and a similar loss across the week. 

The pull back could provide a good entry opportunity for a stock which increased its subscriber base by 117 million in the last quarter. Many traders bemoan not entering Netflix sooner, so this recent pullback could be a good chance to jump in.

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