Walt Disney Co (DIS) Stock Has Lost Its Magic

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Walt Disney Co (NYSE:DIS) shares have taken a hit in recent weeks suffering technical deterioration across the board. And if the charts are any indication, another down-leg is about to begin. Allow me to chronicle the rollover, and perhaps more importantly, highlight how to profit from DIS stock’s lost magic.

Walt Disney Co (DIS) Stock Has Lost Its Magic
Source: Shutterstock

We begin on the daily chart, which shows Disney’s recent entrance into a downtrend. At $107.60, DIS is now 7% off its recent highs. It’s plunged well below its 20-day and 50-day moving averages in the process showing a reversal in both the short- and intermediate-term trends.

The rate of descent has been steep (check out the channel highlighted by the dotted black lines in the accompanying chart). And while the downside velocity may slow, resistance aplenty looms overhead.

The rally over the past three trading sessions filled last week’s gap. Price gaps, once-filled, often act as resistance and we’re seeing as much in early trading today as Disney’s pop is faltering. Even if Mickey musters the strength to hurdle above $108, yet another gap area rests overhead at $110.


Click to Enlarge
Source: OptionsAnalytix

On the volume front, things look dismal. Disney’s descent has been accompanied by no less than seven distribution days. These high volume down days suggest the stock is falling out of favor with the big boys — for now at least. Continued angst from institutions may well keep a lid on DIS for weeks to come.

And that, dear readers, is something we can bank on.

DIS Bear Calls

If you’re willing to wager Disney shares remain under pressure for the next month, then sell the July $110/$115 bear call spread for $1.

The initial $1 premium represents the max reward and will be captured if the stock sits below $110 at expiration. But if you want to increase your odds of success, then consider buying back the call spread once you’ve captured 50% of the max profit, or 50 cents.

The max risk is limited to the spread width minus the initial credit, or $4, and will be lost if Disney powers back to $115 by expiration. To minimize the damage, however, I suggest exiting the position if DIS pops back above the 50-day moving average near $112.

At the time of this writing, Tyler Craig held bearish positions on DIS.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/walt-disney-co-dis-stock-has-lost-its-magic/.

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