Walt Disney Co (DIS) stock lost its magical touch last August and has been disappointing shareholders ever since.
At its worst the downturn delivered a 29% drubbing to Disney stock, but to be fair, the substantial giveback comes following four years of gargantuan gains quadrupling Disney’s equity.
So let’s be honest, long-time shareholders have little to complain about here. The late-to-the-party charlies who piled in at the $120 level on the other hand, well, they can complain away.
With the recent recovery striking stocks across the land, Disney is seeing some of its old magic return. Since bottoming on Feb. 10, Disney stock is up a respectable 10.7%. The budding rally has returned DIS to key overhead resistance creating a potential breakout play in the process. More on that in a minute.
Another development of note is the heavy volume accompanying Mickey’s last plunge. The early February drop was driven in part by Disney’s latest earnings announcement.
The large volume down day following the earning release reeks of capitulation. Nervous Nellies dumping their shares following disappointment for Disney’s performance last quarter have now been shaken out of the stock.
The subsequent sharp rebound in the Disney stock price suggests at least an intermediate-term low is in place and the bulls may well hold the upper hand here.
An obvious entry point for traders interested in wading into Disney’s magical waters is the looming breakout over $97.50.
If Disney’s stock price can successfully takeout this level it will be the first time such a resistance break has occurred since DIS peaked last November. Such a development would be a positive omen for the stock holders in Disney going forward.
The Disney Stock Breakout Trade
With earnings fading in the distance, demand for options has ebbed considerably. Now that option contracts are being offered up on the cheap, it’s high time for some long premium plays.
Traders willing to take the aggressive route in playing for additional upside in Disney’s stock could consider buying May call options.
Buy the May $95 call for $4.90 or better. The max loss is limited to the initial $4.90 debit and will be forfeited if Disney stock sits below $95 at expiration. The max gain is unlimited.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
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