Our subject today is Blockbuster Entertainment. This article on the Atlantic Business Channel brought to my attention that Blockbuster is on the verge of bankruptcy. Back in the day of the VCR tape, Blockbuster was the largest and healthiest video rental chain. So what happened?
Atlantic’s article suggests three different possible reasons for Blockbuster’s demise, one of which was Netflix. I’m not so interested in why Blockbuster’s fundamentals deteriorated, but I am pretty interested to see what the comparative performance was for the two stocks in the market. That’s what relative strength is, after all.
source: Yahoo Finance. Click to enlarge.
If you are curious too, here are the charts for the last two years or so. Netflix is up substantially, while Blockbuster has gone nearly to zero. Relative strength sorted out the fundamentals just fine, by letting the market be the judge.
Relative strength is powerful because it is objective and because it measures market performance directly. Analysts who examine fundamentals try to ascertain what the ultimate impact will be on the market price; relative strength just measures the market price directly. As you can see, the signal from the market is often worth paying attention to.
Disclosure: Some Dorsey, Wright managed accounts currently have a position in Netflix (NFLX).
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