Shares of Disney (NYSE:DIS) have been in a consolidation pattern since late November 2019, and thus have not participated in the big market rally since. The stock’s recent price action suggests a bid remains underneath the stock. A bullish reversal pattern over the past couple of days sets up a bullish trade with well-defined risk in DIS stock.
As the broader U.S. large-cap indices like the S&P 500 continue to march higher, despite a variety of negative headlines and continued slowing economic growth, trend-followers must increasingly stay on their toes for a reversal or consolidation pattern.
While in my eye trend-following is one of the most consistently successful strategies of our time, once the trend ends (particularly in late stage economic cycles where in my opinion we currently find ourselves), stocks will take take the elevator down and quickly erase a good amount of recent gains.
With this risk management note in mind, let us look at shares of Disney for the bullish setup that it currently flags.
Disney Stock Charts
On the multi-year weekly chart we see that after a long time remaining confined below the $120 mark, in April 2019 DIS stock surged past this level in a significant breakout move. The stock then traded choppily for a while but did see another rally in November following its earnings report.
Note, however, that the stock continues to act well in the sense that it is consolidating its rallies, which from a trend following perspective does not rule out another move higher.
Zooming in to the daily chart we see that after topping out in late November 2019, Disney stock began to slide. In late February of this year it even briefly dipped below its red 200-day simple moving average. It is notable that the stock never actually closed below this moving average on a weekly closing basis.
The stock then rallied into its early February earnings report but also quickly gave up those gains following the report. Here it is also notable that DIS stock ended up holding above its 200-day moving average all along. Just this week on Tuesday, Feb. 18, Disney stock once again bounced off this moving average with follow-through buying on Wednesday, Feb. 19.
Trading DIS Stock
Given all of the aforementioned information, I now see a bullish trade setting up against the stock’s 200-day moving average, which currently resides around the $139 mark.
Entry: Buy DIS stock around $141 and change
Target 1: $144
Possible target 2: $146
Stop loss: Any strong one-day bearish reversal, particularly one that is also seen in the broader stock market and pushes DIS stock below its 200-day moving average, would be an automatic, no questions asked stop loss signal.
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