Ponsi: Apple vs. Netflix: The Brawl for it All

On a day when most tech stocks were hammered, Apple (AAPL) caught a bid, and stayed bid all day. Word is out that Apple is discussing a tie-in with Comcast (CMCSA) that would provide a high-quality, premium streaming television service.

The service would provide on-demand and digital video recording (DVR) programming, which would take precedence over other local Internet traffic. That last point would ensure a high-quality viewing experience, free from the buffering and choppiness you might experience when local Internet demand is high.

This product would seem to be a shot aimed directly at the industry leader, online streaming giant Netflix (NFLX). Some Netflix viewers occasionally have difficulty with picture quality due to buffering, an issue which has drawn the ire of CEO Reed Hastings. Hastings blasted Internet service providers on his company's blog last week, drawing a response from AT&T's (T) Jim Cicconi, who called Hasting "arrogant." 

While Hastings is a proponent of strong net neutrality, Apple seems more concerned with providing a superior user experience. Hastings has clearly irritated the folks who deliver his product into our homes and now Apple is attempting to leverage that faux pas into a competitive advantage.

How will this all shake out in the end? According to the charts, it appears that Apple has the upper hand. Apple has already formed a massive cup, but needs to get to $575 to complete the handle. That would require a move of about 7% from yesterday's close. A move above $595 would remove any lingering doubts and would eventually result in a trek toward $700. But all of this is void if the stock fails to complete the handle by climbing above $575.

Meanwhile, Netflix smashed through its 50-day moving average (blue) on double its average volume yesterday. Netflix is likely headed to $334, which would result in a fill of the Jan. 24 gap (shaded yellow). Further support lies just beneath in the form of the 200-day moving average (red), currently positioned at $327.


Because Netflix has considerable support in the $327/$334 area, I'm not projecting a bloodbath here. But the stock could easily lose another 12% from yesterday's closing price. In the longer run, if Apple can establish itself with a superior streaming television product, Netflix could become a shadow of its former self. Let's not forget what Apple did to one-time industry leader Research in Motion, now known as Blackberry (BBRY). Apple beat them by providing a superior consumer experience and now it's threatening to do the same to Netflix.

Ed Ponsi is the managing director of Barchetta Capital Management, an NFA-registered commodity trading advisory, and also provides educational services through EdPonsi.com. An experienced professional trader, Ponsi has advised a variety of hedge funds and institutional traders. Ed has appeared on CNBC more than 100 times and has been profiled in magazines such as "Technical Analysis of Stocks and Commodities" and "The Traders Journal." He is the author of Forex Patterns and Probabilities, a top-selling book on currency trading and The Ed Ponsi Forex Playbook, which was endorsed by Steve Hanke, professor of applied economics at The Johns Hopkins University. Ed's books have been published in English, Vietnamese, and simplified Chinese. At the time of publication, Ponsi was long AAPL.

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