TAKEAWAYS
- Disney's stock price is showing signs of consolidation and may be worth watching for signs of a breakout
- The stock is at a critical support level and if the stock is able to hold this support, it could be positive for the stock
- A break above its consolidation pattern could be very positive for the stock
Disney (DIS) may be the Happiest Place on Earth, but its stock price doesn't reflect similar sentiment. Behind the scenes, Disney has had its share of problems, ranging from internal board battles and political disagreements to disappointing box office revenues. Given the stock price has broken out of a downward trend, is it a stock to add to your ChartLists and jump in when the opportunity strikes?
The Weekly View
The weekly chart of Disney's stock price (see chart below) shows how badly the stock has been beaten down. Relative to the performance of its subsector, the Dow Jones US Broadcasting & Entertainment Index ($DJUSBC), Disney's stock has been underperforming (top panel).
CHART 1. WEEKLY CHART OF DISNEY STOCK. After reaching a high in March 2021, Disney's stock has fallen over 50%. Is the stock showing signs of breaking out?Chart source: StockCharts.com. For educational purposes.
Since bottoming in October, the stock price has inched higher and briefly broke above its 50-week simple moving average (SMA). Yet the stock is struggling to stay above the moving average.
Disney's stock is still in a downtrend, so opening a long position is premature. But given the stock has the potential for a lot of upside, it could be worth watching. The stochastic oscillator indicated the stock was overbought when it broke above its 50-week MA, but the momentum quickly waned. The stock pulled back slightly and is now trading below its 50-week SMA, while the stochastic oscillator is trending lower. This indicates the upside move was short-lived. But much of that movement rides on the performance of the broader indices.
The Daily View
Disney was filtered in the Bullish 50/200-day MA Crossovers scan in StockCharts. Looking at the daily chart (see chart below), the stock is trading above its 50-, 100-, and 200-day SMAs, and the 50-day SMA crossed above the 200-day SMA, which is known as a golden cross.
CHART 2. DAILY CHART OF DISNEY STOCK. The stock is moving sideways within the rectangle displayed on the chart. Look for a breakout above the rectangle for upside movement. A break below the 200-day SMA could indicate further weakness.Chart source: StockCharts.com. For educational purposes.
From the chart, the following key points should be noted:
- Disney's stock price is trading sideways within the green rectangle marked on the chart. The stock is trading at the lower end of the rectangle. The low of the rectangle or the 200-day SMA could act as a support level for the stock. The price will have to bounce off that support to confirm any type of recovery in the stock's price. A break below the support could mean weakness in the stock and bring the stock price back to its October/November lows.
- The stochastic oscillator indicates the stock is oversold and the relative strength index (RSI) is below 50.
- The relatively large range of the last bar on the chart is cause for concern, since it could indicate that sellers are dominant.
The bottom line: DIS is at a critical support level. The stock could go either way, but if it holds support, there's a chance the stock could go higher.
Will the House of Mouse Revive Its Happiness?
In the stock market, changes occur quickly and when you least expect them to.
If Disney were to resolve its internal problems, we could see its stock price rise from its doldrums. The company is making changes to recover its streaming service investments and turn around its theme parks. Whether these changes will help the company and its stock price remains to be seen.
Watch the top of the rectangle on the daily chart. If price breaks out above the rectangle, the stock could be a promising long-term play. The stock is worth adding to your ChartLists and one to check regularly. If there's any sign of upside movement, you don't want to miss the ride to the happiest place on earth.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
Happy charting!
