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As the screenshots show, each strip has a PNG image with transparency. blueoutline.png is above yellowball.png, each is using Alpha Over as a method of blending. What am I missing? Is this the reason: "Blender won't handle an alpha channel in a codec. Alpha in a codec is largely a nonstandard practice" Source. PNG #1 PNG #2

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  • $\begingroup$ If you render that frame does it show the Blue ring over the Yellow circle? Also try hitting the "Refresh Sequencer" button. $\endgroup$ – rob Mar 20 at 15:31
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You want to select both strips and add a alpha over effect strip. enter image description here

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