Trade of the Day: DIS Stock Losing Its Magic?

Walt Disney Co (DIS) — DIS stock fell 1.1% on Tuesday making it one of the worst performers on the Dow 30, after reports that its “Alice in Wonderland” sequel, “Alice Through the Looking Glass,” bombed at the box office over the holiday weekend. The much-hyped movie grossed just $34.2 million over the four-day weekend, about half of what was expected.

Disney has also been in the news recently for saying it plans to take action against China’s Wanda Group for several knockoff characters at its theme parks. But CNBC reports the deep-pocketed Chinese rival is “preparing for battle.”

Turning to the chart, DIS stock peaked above $120 in November. The decline that ensued saw shares fall nearly 30% to a low of $86.25 in February. Along the way, a death cross was triggered.

DIS stock then formed a recovery channel over the next several months, advancing to its 200-day moving average. But on May 9, my proprietary internal indicator, the Collins-Bollinger Reversal (CBR), signaled a downside reversal at about $109.

DIS stock gapped down through its 200-day moving average and the support line of the recovery channel before attempting a bounce from the mid-May low under $98. The rally failed last week when shares were unable to penetrate their 50-day moving average near $100, and this was followed by more selling on Tuesday.

Sell DIS stock short at $100 with a downside objective of $88 for a potential gain of 12%. As with all short sales, be sure to use a stop-loss order to protect against the possibility of theoretically unlimited losses in the event of a rally.

Also, keep in mind that if you hold shares short through a dividend payment, you will be expected to cover it. Disney pays a semiannual dividend of $0.71, for a current yield of 1.4%, with the next payment scheduled in July.

DIS Stock Chart
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