Roku, Inc. (ROKU) stock has attracted plenty of attention from the momentum crowd since the start of 2019, when it took off in a torrid nine-month advance that booked an astounding 570% gain. Financial sites have been chock full of bullish commentary since Roku stock topped out on Sept. 9, but sellers have been active during this period, dumping the stock nearly 30%. More importantly, there is little evidence that smart money is opening new positions or adding to existing ones.

Old market wisdom warns investors that "the bigger the move, the broader the base." It's possible that the rally overshot the most optimistic valuations and that the stock now requires major user growth to justify the lofty prices paid in 2019. However, it's more likely that the slow-motion decline since the Dec. 2 sell gap denotes a simple holding pattern while investors wait for a meaningful catalyst in the Feb. 13 earnings report.

Even so, there are signs that the mania that followed the introduction of The Walt Disney Company's (DIS) Disney + and Apple Inc.'s (AAPL) Apple TV+ has run its course. For starters, Disney stock has acted poorly since posting an all-time high two weeks after the November release, raising the stakes ahead of Feb. 4 earnings. Adding to concerns, Apple missed services business revenue expectations in Q1 2020, with Apple TV+ comprising a large share of that income.

Well-known investor Mark Cuban told CNBC earlier this week that he almost bought Roku in the fourth quarter but chose to sit on his hand because it's unclear if the company can build meaningful market share outside of hardware products. It's also instructive that the stock has received just a single analyst upgrade in the past three months, with Needham raising estimates in early December.

ROKU Weekly Chart (2017 – 2020)

Weekly chart showing the share price performance of Roku, Inc. (ROKU)
TradingView.com

The company came public in the mid-$20s in September 2017 and entered an orderly pullback that found support in the upper teens in October. The stock gapped up in November and never looked back, zooming into the upper $50s in mid-December. A steady decline into April 2018 ended in the upper $20s, ahead of a September breakout that stalled in the upper $70s. It failed the breakout in the fourth quarter, dropping all the way back to the second quarter low.

Bulls took control at the start of 2019, completing a round trip into the 2018 high in March. The stock broke out in May, entering a momentum-fueled advance that posted an all-time high at $176.55 in September. The subsequent reversal found support in the upper $90s a few weeks later, filling out a trading range that hasn't been tested in the past four months. Price action is currently stuck below the range midpoint, holding support at the .382 Fibonacci retracement of the 2019 uptrend.

The weekly stochastics oscillator has reached the oversold level for the third time since April 2019, predicting that bulls will soon reload positions. However, a final decline into the 50-week and 200-day exponential moving averages (EMAs) may be needed to "clear the decks" before that reversal, exposing late-to-the-party investors to additional pain. The next uptick, when it comes, will run into substantial overhead supply between $145 and $160, potentially delaying technical buying signals.

ROKU Daily Chart (2017 – 2020)

Daily chart showing the share price performance of Roku, Inc. (ROKU)
TradingView.com

The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high with price in September 2019 and entered a vertical but short-lived distribution phase that ended in November. The subsequent buying spree faded under the prior high, while renewed selling pressure through January has dropped OBV dangerously close to the September and November lows. A breakdown through the lower red line would set off sell signals in this configuration, even if price still holds range support.

The Bottom Line

Roku stock is losing ground in a slow-motion decline, with even odds for a bounce into the 2019 high and a decline down into the double digits.

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