Disney Is A Stock To Trade, Not Own - Here's Why

About: The Walt Disney Company (DIS)
by: Richard Suttmeier

Disney is reasonably priced based upon its P/E ratio is 19.10 and dividend yield of 1.55%.

Shares of Disney have been trading sideways since ESPN became a drag back in August 2015 when its all-time high was set.

Value levels on a daily chart and Fibonacci Retracement levels on a weekly chart provide trading road maps.

Walt Disney Co (DIS) closed Monday at $104.70 down 2.6% and up 8.8% since trading as low as $96.20 on Sept. 7. The stock is also 9.8% below its 52-week high of $116.10 set on April 27. Disney is thus close to falling into correction territory.

Longer-term Disney set its all-time intraday high of $122.08 during the week of Aug. 7, 2015, right before reporting earnings after the close on Aug. 4, 2015. The stock did not bottom until it traded as low as $86.25 during the week of Feb. 12, 2016, when the market set a bottom.

Analysts expected Disney to Apple to earn between $1.59 and $1.62 a share when they report after the closing bell on Tuesday, Feb. 6. The stock has been in the funk of what can be called the ESPN trading range. The move to buy content from Twenty-First Century Fox (FOXA) and attempt to compete with Netflix are the fresh initiatives to repair the Mouse House. The Star Wars franchise may be weaker than expected, thus the wildcard goes back to the future of ESPN.

The daily chart for Disney

Daily Chart For Disney Courtesy of MetaStock Xenith

The daily chart shows that Disney has been trading in a random choppy non-trending pattern. Note how ‘death cross’ and a ‘golden cross’ patterns cannot be trusted for this stock.

The horizontal lines are levels at which to buy Disney on weakness for a trade. My monthly and quarterly value levels are $101.71 and $101.02, respectively.

The weekly chart for Disney

Weekly Chart For Disney Courtesy of MetaStock Xenith

The weekly chart for Disney is negative with the stock below its five-week modified moving average of $108.24. The stock is above its 200-week simple moving average, also known as the ‘reversion to the mean’ now at $100.93. Note that between the week of Sept. 8 and Nov. 10, buying weakness to the 200-week simple moving average provided trading opportunities. The 12x3x3 weekly slow stochastic reading is projected to end the week at 74.53 down from 82.55 on Feb. 2 falling below the overbought threshold of 80.00.

The horizontal lines are the Fibonacci Retracement levels from the August 2015 high of $122.08 to the February 2016 low of $86.25. Note that the stock is between its 50% retracement of $104.17 and its 61.8% retracement of $108.40. A negative reaction to earnings indicates risk to the 200-week SMA of $100.93 and to the 38.2% retracement of $99.94.

Given these charts and analysis, my trading strategy is to buy weakness to my monthly and quarterly value levels of $101.71 and $101.02, respectively, and to reduce holdings on strength to the 61.8% retracement of $108.40.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.