Walt Disney Co (NYSE:DIS) shares have fallen sharply over the past few weeks, all of which began with a sharp post-earnings selloff in early August. DIS stock has corrected more than 20% so far and could see further weakness this morning, just as Disney is coming into better near-term technical support areas.
Active investors could look to play the stock for an oversold bounce in Disney stock, while more structural investors may consider legging into a partial long position.
When Walt Disney reported its latest quarterly results on Aug. 4, the company managed to beat analyst expectations on both the top and bottom lines. It was the cautious comments around advertisement sales in the company’s ESPN franchise that spooked investors.
Walt Disney CEO Bob Iger explained that the weakness in ESPN was due to households cutting the cord (i.e., dropping cable subscriptions), which further confirmed investors’ fears that television advertising revenue is shrinking.
The drop in DIS stock in recent weeks was also mirrored in other media company stocks such as Twenty-First Century Fox Inc (NASDAQ:FOXA), which is to say that the selloff in shares of Walt Disney was not a single-stock phenomenon, but rather an industry-wide risk-off event.
DIS Stock Charts
Moving over to Disney’s stock charts, we see that through a multiyear lens, the majority of the price action has taken place in an orderly uptrending channel. In January of this year, however, the stock began to steepen the ascent, taking its trajectory out and above the multiyear channel for the first time.
Such moves higher out of/above already nicely uptrending channels most often get resolved with a vicious mean-reversion move lower, which is exactly that DIS stock underwent over the past couple of weeks. Note that after six months of trading above the multiyear channel, it only took a couple of weeks for Disney shares to not only fall back into the channel, but retest the very lower end of it. Through this lens, DIS stock has a wide big-picture support area between $80 and $95 that shares could still fall toward over the next weeks and months, particularly if the broader stock market weakness persists.
On the daily chart, we see that DIS stock ascended in a peculiarly steep and narrow range from early June into the early August earnings report, after which everything went very quickly: DIS stock gapped lower on Aug. 5 after the earnings report, snapping both its 50- and 100-day moving averages. After a week or so of consolidating, Disney stock last week took another dive, breaking below its 200-day MA (red line) and arriving at the lower end of the multiyear channel as well as nearly filling the up-gap that followed the February earnings report.
In the immediate to near term, DIS stock looks increasingly oversold, especially with the MACD oscillator in extreme readings.
Active investors and traders could look to buy the next bullish reversal day for a move back up and retest of the 200-day MA around the $104-$105 area, while longer-term investors could look to leg into a partial long position and look to add in the $80-$95 area, if and when DIS stock gets down there.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
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