• Streaming, state and chart-based challenges hang over DIS Stock
• Disney (DIS) is a blue-chip that’s at-risk of larger bear market
• The collar strategy remains a choice strategy for long-term ownership of Disney

Walt Disney Company (NYSE:DIS) shares were hit hard Wednesday in closing down 5.56% at six month lows. But it wasn’t this year’s usual assortment of culprits that took down DIS stock. It was a shot over the bow from Netflix’s (NASDAQ:NFLX) dismal earnings release.

Inflation, rising rates and Covid-19. They’ve been the broader villains hanging over the market and more seriously challenging entertainment goliath Disney in 2022. And it was reflected in DIS stock’s dismal year-to-date decline of 14% entering Tuesday’s session.

Now, and with shares down close to 20%, it was Netflix’s starring role as a bad actor that had DIS shareholders attention. And rightfully so as NFLX shares crashed 35% to four year lows on a surprise subscriber loss, it’s first in ten plus years, while also warning of much larger shrinkage next quarter.

Worse, it may not be easy turning the page on yesterday’s cautionary tale. With signs of a distressed ship or more aptly Big Red Boat already in progress and looming elsewhere, buyers may want to think twice about today’s price of admission in DIS stock.

DIS

The Walt Disney Company

$123.74

Cracks in DIS Stock’s Magical Kingdom

Yesterday, it was all about the direct-to-consumer (DTC) streaming business following Netflix’s dismal news. And for good reason. Disney’s Disney+, ESPN and Hulu are all in the same crowded boat and one where cracks in the hull have already been seen the past couple quarters in DIS stock’s weaker subscriber numbers.

Those challenges aren’t going anywhere, but today it’s more front page news that could spell additional trouble for DIS stock.

With mask mandates and lockdowns mostly a thing of the past, but especially in the state of Florida, 2022 has the outward appearance of being a terrific one for Disney’s dozen theme parks led by the entertainment giant’s Walt Disney World Resort’s tendrilled fun. And chances are each will do great.

But Disney’s political will and opposition to Florida’s “Don’t Say Gay” bill has the state’s Republican lawmakers moving to quash the company’s special tax district status that’s been in place since the Magic Kingdom first broke ground back in the 1960s. Big dollars are at stake and the bill is headed to the state House for a vote today.

DIS Stock Is Sailing in Southerly Waters

Source: Charts by TradingView

It happens to the best of them, and Disney shares aren’t an exception. It’s called a correction and sometimes even a bear market if the price action turns more pressured. And that’s what’s happening in DIS stock.

Disney’s bear market is 39% in depth. That’s no small feat for a large-cap of DIS stock’s size, considering the blue-chip Dow Jones Industrials is off just 2.75% in 2022 and at its weakest had shed just under 13%.

In that light, shares might seem a dog worth buying, even though it’s not an official Dog of the Dow. Unfortunately, the technical picture in DIS stock warns the bearish cycle remains unfinished business.

As the illustrated monthly chart of Disney reveals, shares have now broken beneath three key layers of Fibonacci and trendline support, and narrowly through January’s and March’s candlestick bottoming patterns. It’s fair warning, but not the only thing that’s of concern right now either.

With stochastics oversold, but remaining bearishly positioned and Disney’s Bollinger band starting to turn lower, the observation is DIS stock is headed for a challenge of its larger broadening pattern near $100, before and if shares might successfully get today’s bear off its back.

Disney Stock Takeaway

My view is that any thoughts investors might have of free cheese being served in the House of Mouse’s DIS stock are in for a rude awakening in the coming weeks. If $100 is tested as anticipated, that’s a drop of nearly 19%.

As much and for those that have the risk tolerance for a short position, there’s room for being bearish. However, I’d advise using a slightly out-of-the-money bear put spread with a summer expiration. Verticals like this leverage profit potential, reduce risks associated with Greeks and keep losses fully contained.

Ultimately, I’m not anti-Disney and see shares as a core portfolio choice. At the right price of course.

That being said and as a blue-chip company where accumulating shares while they’re in the doghouse has historically proven a strong strategy, an actively-managed DIS stock collar offers investors, even today’s buyers, a way to begin that kind of program with more authority and confidence.

On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.