Hated Netflix vs Loved Apple: Netflix Wins

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.

NEW YORK ( TheStreet) -- The financial markets have the ability to take the most common of human traits and take full advantage of them to an extent that would even make P.T. Barnum look away in embarrassment. All the common emotions we rely on for our day-to-day survival often end up costing us our wine-and-cheese money on the alternate planet known as Wall Street.

The emotions of love and hate play an important role in determining the what, how and why of a stock's behavior. Ask Senor Average, who invests with XYZ Brokerage, whether a stock that is loved by the masses should outperform a stock that is hated and questioned by most. Invariably, Senor Average will tell you that love will win. Love for the company's products, management and brand will end up trumping anything a company that has been cast in a suspicious light can produce. Love beats hate in the stock market.

Arguably, there is no greater love that exists on Earth today than the love for Apple ( AAPL). People of the modern world, after all, spend more time on their iPad, iPhone or listening to their iPod than with their children, spouses, pets or mistresses. The threat of not having any of these devices for any period longer than that spent in a state of sleep, far outweighs any threat of not seeing friends or family for days or even weeks.

Therefore, it only makes sense that if and when the markets decide to pull back, Apple wouldn't suffer nearly as much as a stock that doesn't have the cult fanfare or the mass following. And there's the trap: It makes sense. Whenever something "makes sense" in the eyes of Senor Average and therefore, in the eyes of a majority of investors, it becomes the market's responsibility, duty and privilege to take full advantage of those who believe in putting their money into "making sense" investments.

What doesn't make sense in today's market, as one example, is Netflix ( NFLX). Here you have the opposite emotions of Apple. Netflix is a company that is looked at as being easily replaceable. It is also a company that is seeing its valuation questioned daily, as well as its long-term viability in the media marketplace. A company that sees its stock price shunned, as if it were a green ogre, attacking a helpless village. Quite the opposite of the make-out session we see between investors and the princess -- Apple.These expressions of love and hate come in form of buys and sells in the financial market. The love for Apple is expressed through an abundance of investors, few remaining short sellers, and fewer still, those investors waiting on the sidelines to deploy their funds into the stock.

It's a wonderful mix of investors while the market is in a pedal-to-the-floor bull move, as we have now. But where does that leave Apple when the financial markets decide to shake the tree a bit, as is common in every bull market cycle?

Imagine a 280-pound muscular linebacker trying to climb to the top of a tree using branches that can barely support his weight. As he climbs farther up, the branches either weaken or break. Yes, he's elated to be at the top of the tree. However, the problem arises when he attempts to come down. There is no support remaining below him as he either weakened the branches as a result of his quick ascent or broke them completely, leaving little in the way of support on the way down.

Apple, with its cult following, who have absolute conviction in the validity of the company regardless of market cap, has very little in terms of support when it chooses to climb down from its current lofty heights. Those who have wanted to invest are already invested. Those short sellers, who would normally be there to support the stock as it descends, have been largely erased from the picture. You can see this imbalance in the chart picture perfectly whenever Apple suffers a down day. There is a vacuum of bids that creates a lack of solid support.

Netflix, on the other hand, with its exquisite ability to generate heaping portions of skepticism, questions and snide remarks regarding its stock price has seen quite the opposite investment crowd. With Netflix, you have mostly new investors, battered short sellers, and a host of potential investors who have one foot in the non-believer camp and the other in the "I'm kinda starting to believe" camp.

This creates a support dynamic for the stock. It's a dynamic I outlined in a Netflix article earlier this month. The fact that skepticism and to some extent -- hate -- is the current attitude toward the stock makes it more resilient, as it allows for a more even weighting of buyers and sellers in the marketplace. Like Apple, this dynamic is demonstrated very clearly in the chart for Netflix, as its demeanor during pullbacks is far different than that of Apple.

Don't be surprised when we do experience the fateful correction that is long overdue, if you see love punish investors, as it often does. At the same time, don't be surprised if you see hate cause enough scurrying and shifting among investors that it creates a pillow of support that love could never dream of.

Ali Meshkati is founder of Zenpenny.com, a Web site focused on investing in restructurings and special situations in micro-caps and penny stocks. Prior to Zenpenny, he managed Trillian Capital Partners LP, a top-ranked macro hedge fund. He has been trading the financial markets since 1994, working as an adviser to both individual clients, as well as an institutional trader with Bank of America.

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