Shares of Walt Disney Co (NYSE:DIS) fell nearly 5% last week after the company reported worse-than-expected results for its latest quarter. The result was some technical damage to the chart that should encourage traders and active investors to play Disney stock to the short side.
In its latest quarter, Disney earned $1.36 per share versus analyst estimates of $1.40. Although profits were higher on a year-over-year basis, concerns around advertising rates and ratings at its ESPN sports network resurfaced and led investors to shed the stock.
Investors’ fear over TV viewers moving away from bundled television packages — and thus fewer eyes on networks such as ESPN — is an ongoing story and will likely cause volatility spikes in DIS for years to come.
Disney Stock Charts
Moving to the charts, we see in the multiyear weekly look that after topping out last July, DIS shares rebounded sharply into November and formed a notable lower high. From there, the next volatile leg lower took investors on a ride until the broader market once again began to stabilize in February and the relief rally took hold.
Early last week, Disney stock rallied marginally above its yellow 50-week simple moving average, where it promptly reversed after earnings and continued to slide for the rest of the week.
Note that last week’s highs also coincided with a 61.8% Fibonacci retracement of the selloff from last November’s highs into the February lows. As such, last week’s bearish reversal confirmed a lower high versus the November 2015 highs, and now shares favor a downside trajectory for the near- to medium-term.
On the daily chart, we see that DIS stock last week also broke below both its yellow 21-day near-term moving average as well as the red dotted support line off the February lows. The down-gap following earnings last week puts all the more downside pressure on Disney and now puts the mid-$90s into focus as a next downside target.
As in many trading setups that I look for, this current setup in Disney stock shows last week’s bearish reversal took place at a key confluence area where multiple things came together.
Furthermore, the bearish picture is confirmed on both the daily and weekly chart, and thus assigns a greater probability of this trade working out.
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