Netflix, Inc. (NFLX) stock rallied above the 2020 high near $400 in April, hitting an all-time high at $459 last week, but it still hasn't confirmed a breakout above tough 2018 resistance around $425. Time is running out for a bullish outcome, with relative strength and volume indicators starting to flash warning signs that could trap late-to-the-party trend followers in a sizeable decline and bearish double top scenario.

Stay-at-home and quarantine orders underpinned strong first quarter revenues, with 15.77 million new subscribers blowing away guidance of 7.0 million. However, compressed margins triggered a profit shortfall that could get worse in the second quarter due to the worldwide halt in film and television production. Competition could also take a bite out of bullish sentiment, with HBO Max adding to competitive threats from The Walt Disney Company (DIS) and Apple Inc. (AAPL).

Wall Street has grown more bullish on Netflix shares since the April 21 earnings release, with upgrades from Wells Fargo, Pivotal Research, Jefferies, and Citigroup. Investment houses are also pounding the tables, with funds run by Stanley Duckenmiller, David Tepper, and Keith Meister opening or adding to positions. This support should eventually yield higher prices, but it has had little impact on accumulation so far, which is lagging bullish price development by a wide margin.

NFLX Long-Term Chart (2002 – 2020)

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

Netflix came public at a split-adjusted $1.16 in May 2002 and posted an all-time low at 35 cents in October. It rallied to a new high in 2003 before stalling at $5.68 in the first quarter of 2004, marking a peak that wasn't challenged for the next four years, ahead of narrow range-bound action that featured two tests at $1.00. A 2009 breakout finally established a strong uptrend, with the first rally wave topping out at $43.54 in 2011.

The stock tested breakout support in the single digits in 2012 and turned higher, entering an uptick that completed a 100% retracement into the prior high in 2013. Netflix eased into a rising channel after a 2014 breakout, gaining ground into the 2015 peak at $129.29 before rolling into a shallow decline that maintained the growing string of higher lows. It mounted resistance after the 2016 election, posting impressive gains as a member of the highly desirable FAANG quintet.

The trend advance stalled at $423.21 in June 2018, establishing a resistance level that is still in play nearly two years later, and entered a complex correction that ended in December after the stock filled the January 2018 gap between $227 and $247. The 2019 bounce reversed at the .786 Fibonacci sell-off retracement level in April, yielding a higher low in September, followed by an advance that reversed at range resistance in February 2020.

The stock reversed at another higher low in March and completed a round trip into the 2018 high in April. An immediate breakout reversed after reaching $450, while a bounce into May reversed less than 10 points above the April high last week. The stock has crisscrossed the 2018 high multiple times during this period, indicating that resistance is still in control of the long-term tape, despite short-term buying spikes.

NFLX Short-Term Chart (2018 – 2020)

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

The on-balance volume (OBV) accumulation-distribution indicator topped out with price in June 2018 and entered a distribution phase, posting an 11-month low in December. Subsequent buying power stalled in January 2019, generating resistance that denied July and February 2020 breakout attempts. OBV then eased into a shallow decline (red line) that is still in place even though price has rallied to an all-time high, establishing a bearish divergence that lowers the odds for a sustained breakout.

The monthly stochastic oscillator has crossed over at the overbought level at the same time, but the signal line still hasn't confirmed a new sell cycle. It will take only one or two down days at this point for that to happen, telling informed market players to consider defensive action. Taken together with the OBV deficit, the odds for a failed breakout are increasing, perhaps setting the stage for a sell-off that reaches the lower $300s.

The Bottom Line

Netflix stock traded at an all-time high last week, but stubborn resistance at the 2018 high could trigger a failed breakout.

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