Walt Disney Co (DIS): Don’t Chase the Mouse Here!

Walt Disney Co (NYSE:DIS) has made a sharp bounce in recent months, and on Monday, DIS managed to crack back above the psychologically important $100 level on a daily closing basis. Some pundits and talking heads were quick to label this a positive technical breakthrough, but I would raise a cautionary flag.

Beat the Bell: Walt Disney Co (DIS)Disney stock’s risk-reward prospects for traders and active investors look increasingly lousy.

Monday’s broader stock market exuberance was in part due to recovering oil prices, which on Sunday night slumped after a meeting of oil producing countries ended with no agreement to production cuts. This, as well as news of good opening weekend sales of Disney’s new The Jungle Book, helped propel DIS stock to levels last seen in December. (As an aside, Disney is not expected to report its next earnings results until May 10.)

But the recent sharp bounce in DIS stock is not the only story. In fact, without understanding where this stock came from just a few years ago, we can hardly make a judgement call of the significance of the current juncture.

Disney (DIS) Stock Charts

On the below multiyear chart, we see that from 1998 until 2012, Disney stock was capped in the low $40s. This all changed in summer 2012 when the stock began exploding to the upside — a stride that lasted right into summer 2015. Along the way and in classic fashion of trend-following stocks that get too frothy, DIS stock constantly steepened the slope of its ascent, until finally in the summer of 2015 a corrective move began.

This corrective move in January finally snapped an important support line, which now has the stock firmly in consolidation/correction mode.

Disney stock charts
Click to Enlarge

On the daily chart, note that in January, Disney stock snapped its black 2012 support line, which it came close to revisiting on Monday. The stock’s 100- and 200-day (blue and red) simple moving averages are both pointing down, and a layer of horizontal resistance is also coming into play.

Also note that while DIS stock topped in August of last year, the stock rebounded sharply in the autumn months and in November marked a marginally lower high, which we may also label as a double-top.

This, combined with the break of the 2012 support line in January, has the stock in a corrective wave that does not look to be over just yet. Disney stock is just now in the process of retesting a layer of former technical support, which may now become resistance.

Disney stock daily
Click to Enlarge

While less risk-averse traders could look to play Disney stock from the short side after any meaningful bearish reversals, more conservative traders should just note this technical picture so they don’t chase the stock higher from here. (For now.)

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/walt-disney-co-dis-stock-mouse/.

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