Disney (DIS) has been consolidating under resistance near $67 since mid-May, and has finally broken higher today. The consolidation range that DIS has been in has been an interesting one because it has combined two bullish continuation patterns into one long consolidation range. From mid-May to early July, DIS formed a bullish flag. This pattern was completed on July 8, when the stock broke above the down-trending resistance level that formed the top of the bullish flag. Once the stock climbed back up to around $67, however, it entered an inverted head-and-shoulders pattern that just completed. The fact that DIS consolidated for so long tells us that the stock has a lot of pent up momentum in it, and we anticipate this breakout is going to lead to a large move higher.
Based on the height of the inverted head-and-shoulders pattern, we anticipate DIS will climb to at least $73. We determine this by measuring the distance between the neckline (around $67) and the head (around $61) of the pattern, and adding that amount ($6) to the value of the neckline at the breakout point (around $67). With the market making as strong of a bullish move as it is today after the worse-than-expected nonfarm payrolls number, we don’t think DIS will have any trouble continuing to climb higher.
DIS is also scheduled to release earnings on Nov. 7. We have gone out to a December expiration on this trade to give us plenty of time to hold the stock while it makes its move higher — recognizing that we may need to hold until the company’s earnings announcement.
Recommendation: Buy to open the DIS December 70 Calls (DIS131221C00070000).
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