Entertainment giant Walt Disney (DIS) continues to trade with a bullish undertone despite its roughly 340% rally off the 2009 lows and 45% jump off the November 2012 lows into May of this year. Disney stock has been largely rangebound since its May 2013 top, but the rallies that have occurred off the bottom of this multimonth trading range have been ferocious.
In the bigger picture, Disney’s stock price is fairly well correlated to the broader U.S. stock market, as represented by the S&P 500, and thus not surprisingly shows a similar pattern on its chart.
The most prominent support line for Disney stock is its November 2009 uptrend, which also remains important for the S&P 500. But it is important to take said trend-line merely as a reference point, rather than an absolute point on the chart to blindly lean against. Case in point is the S&P 500, which earlier this week saw its 2009 uptrend break for a mere two days before violently reversing gears to the upside again.
Traders who understand to treat such trendlines as reference areas will inadvertently also be more open to both potential scenarios — a break below or a bounce.
The lower end of Disney stock’s multimonth trading range currently also coincides with its 200-day simple moving average (red line) near $60.50-$61, both of which are below the November 2012 uptrend, which currently is near $62. In other words, DIS is another example of where a major trendline needs to be taken with a grain of salt, because an important support level rests just below this support line. Without knowing this, traders might give up on Disney stock too soon and let the bulls get the better of them.
Within its multimonth trading range, DIS — over the past three weeks or so — has formed an even tighter range, which happens to be snuggling up right at the top of its 50- and 100-day SMAs.
In other words, there is good near-term support at the lower end of this range, which if broken should lead Disney stock to move toward $60.
On Thursday, DIS marginally broke to the upside of the near-term range and thus now favors a move back toward the upper end of the multimonth range near $68. A break above this area could lead to a much more pronounced move higher over time.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.