Netflix, Inc. (NFLX) stock has risen more than 30% so far in 2019, but this impressive number is deceptive because the entertainment giant posted those gains in the first two weeks of January, after dumping more than 30% into year end. The stock has been running in place in a dead price pattern since that time, failing to attract the firepower needed to test last year's all-time high at $423.21 while dropping into the lower half in Nasdaq 100 component performance.

Unfortunately for bulls, time is running out because relative strength cycles have turned south, predicting at least six to nine months of bearish price action. In addition, the first quarter bounce ended at the .786 Fibonacci retracement of the second half decline, a price level that's notorious for printing lower highs in long-term topping patterns. Given these technical headwinds, July 17 earnings may need to beat expectations by a wide margin to continue the long-term uptrend.

Dow component The Walt Disney Company (DIS) will release a streaming service that competes directly with Netflix in the fourth quarter, ending a partnership that featured dozens of Marvel, Pixar, and other animation hits, including the currently streaming "Ralph Breaks the Internet." The competitive challenge and content departure could slow the meteoric growth of Netflix in the coming years, making the stratospheric price-to-earnings (P/E) ratio of 129 less attractive to investors.

NFLX Long-Term Chart (2002 – 2019)

Long-term chart showing the share price performance of Netflix, Inc. (NFLX)

The company came public at a split-adjusted $1.16 in May 2002 and fell to an all-time low at 35 cents in October. A bounce into the first quarter of 2004 stalled at $5.68, marking resistance for the next five years, ahead of narrow sideways action that carved three higher lows into November 2008. The subsequent uptick completed a breakout one year later, signaling the start of a fruitful period that booked impressive returns for shareholders.

The rally ended at $43.54 in 2011, giving way to a steep correction that reached the single digits in September 2012. The low print marked a historic buying opportunity, ahead of a rapid advance that completed a round trip into the prior high in 2013. The stock broke out immediately but made little progress, testing new support for nearly two years before ejecting higher in a sustained uptrend, and added to gains into 2018's all-time high above $400.

The monthly stochastic oscillator warns that the technical outlook has turned against higher prices, after crossing into a buy cycle in January 2019 and reaching the overbought level in April. A bearish May crossover has now been confirmed, predicting that the stock will struggle to add points in the third quarter. In turn, this force of gravity exposes price action to a deep slide that could reach the 2018 low.

NFLX Short-Term Chart (2016 – 2019)

Short-term chart showing the share price performance of Netflix, Inc. (NFLX)

A Fibonacci grid stretched across the 2016 into 2018 uptrend places the December low at the 50% sell-off retracement level, while a second grid across the 2018 decline confirms that buying interest has dried up at the .786 retracement level. This conflict between time frames will end with a decline through the 200-day exponential moving average (EMA) at $340 or a rally above the May peak at $386. The odds have shifted to the bearish outcome in recent weeks due to the stochastics crossover, even though the on-balance volume (OBV) accumulation-distribution indicator signals a neutral holding pattern.

Summing up this complex scenario, the stock fell more than 45% from the June high to the December low and bounced strongly into January, recouping about three-quarters of the downside, but it has added just four points in the past five months. This wickedly bad performance may reflect the impact of Disney's entrance into the sector as well as fears that trade tensions will dampen international subscription growth, which Netflix needs to reach lofty quarterly expectations.

The Bottom Line

Netflix stock has underperformed the Nasdaq 100 index since January and could drop to lower levels in the third quarter.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.