Not one to be left out, Walt Disney Co (DIS) has joined the stock rally with a recovery of its own. Though Disney stock remains a far cry from its all-time highs, the nascent rebound looks promising. The technicals are turning.
Join me for a tour through the mouse house. I suspect we’ll find a few shekels lying around just waiting for an opportunistic trader to scoop them up.
We begin with perhaps the largest feather in Disney bears’ cap — the ominous looking double top hanging ’round Mickey’s neck like a millstone. The size of the topping pattern, along with its duration — one year in the making — demands some attention. The descent following the second peak, from $120 to $90, has been sufficient to turn the 200-day moving average lower in DIS stock for the first time in years. Spooky.
Here’s the deal though. Double tops aren’t completed or confirmed until the key support forming the base of the “M” is broken. And even then, these topping patterns aren’t infallible. In early February, Disney stock did breach the $90 level — seemingly confirming the double top — but it quickly recovered. A fakeout if there ever was one.
Bottom line: the double top remains a potential topping pattern only. Its bearish implications are on hold until Disney breaks and stays below $90 — if it ever does.
The budding recovery in DIS has taken it back above the 20-day and 50-day moving averages, showing the short-term trend, like the rest of the market, is now pointing higher. Over the past two weeks, Disney stock has based nicely beneath the magical century mark, setting up a clean breakout pattern.
If you think Disney maintains its magic for while longer, consider playing the coming breakout over $100.
Disney Stock Options for a Double
Disney options are cheap these days making a long premium play mighty attractive. Buy the May $100/$105 call spread for $2.05. The bull call spread is well positioned should DIS stock rally towards $105 in the months ahead.
The max loss is limited to the initial $2.05 and will be forfeited if Disney sits below $100 at expiration. The max gain is limited to the distance between strikes minus the net debit, or $2.95, and will be captured if DIS sits above $105 at expiration.
If Disney rallies a mere 5% from its current perch, the call spread will double your money. That’s not magic, that’s leverage.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
