Trade of the Day: Good Reward to Risk in Walt Disney Co (DIS) Stock
Shares of Walt Disney Co (NYSE:DIS) have seemingly not been able to get out of their own way thus far in 2017, which in terms of performance translates into a -3.3% return. While DIS stock is far from a “breakout” candidate or momentum play, its recent behavior around a key technical area of confluence support does offer good reward to risk for active investors and traders alike.
Source: Shutterstock
From a headline news perspective, the concerns around Disney are well documented; cord-cutters or millennials that never even had a cable television subscription may be more difficult to reach for Disney, although the company is now working on an exclusive content app.
While my take today on Disney today is not based on a long-term analysis, from where I sit it is difficult to imagine Disney not being able to get over these issues and figure out a way to play in this new environment.
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Before looking at DIS stock let’s note that the Consumer Discretionary SPDR (ETF) (NYSEARCA:XLY) of which the stock makes up about 6% although higher by 12.40% for the year, has done nothing for performance since the month of May. In other words, although DIS stock has performed poorly year to date, the broader consumer discretionary sector has also not performed for the past few months.
DIS Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we see that DIS stock after topping out in August 2015 slipped into a big picture consolidation phase that it remains in to this date. So far the peak-to-trough “correction” for the stock in this consolidation phase has measured about 30%, which in many ways is a healthy move.
Note that the weakness DIS stock of late has pushed down to its red 200-week simple moving average for the first time since 2011. So far this moving average is holding as support. If support can hold then the stock could soon be back on its way to the upper end of this big picture consolidation range in the $110 area.
Moving averages legend: blue – 8 day, yellow – 21 day
On the daily chart, we see that as DIS stock bounced a little over the past couple of weeks (off that 200-week moving average from the above chart), it has also pushed back above both its 8- and 21-day moving averages and out of a “falling wedge” type of pattern (black lines).
Active investors and traders now have very well defined risk in DIS stock for if it breaks below the $96 area (i.e. the September lows and the 200 week moving average) it could break lower in a bigger way. As long as this support level holds, however, in my eye a next upside target around the $107 mark may be in the cards.
Check out Anthony Mirhaydari’s Daily Market Outlook for Oct. 4.
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