The Walt Disney Company (DIS) missed earnings per share (EPS) estimates when it reported results after the close on May 5. Its share price slipped slightly but rebounded. Disney stock is now between its weekly value level at $100.24 and its monthly risky level at $112.81.
Disney is a media giant and an important component of the Dow Jones Industrial Average. The stock is not cheap, as its P/E multiple is 23.69 with a dividend yield of just 1.63%, according to Macrotrends.
The stock closed last week at $138.97, down 3.7% year to date, but Disney is in bull market territory at 29.5% above its low of $107.32 posted on March 25, 2019. The stock is 9.4% below its all-time intraday high of $153.41 set on Nov. 26.
The daily chart for Disney
Disney was above a golden cross a year ago. This chart positive enabled investors to buy the stock at its 200-day simple moving average at $128.75 on Oct. 31. This tracked the stock to its all-time intraday high of $153.41 set on Nov. 26.
The golden cross ended on Feb. 24, when the stock gapped below the 200-day simple moving average. The semiannual pivot at $130.29 gave way to the downside on Feb. 25.
On March 9, a death cross formed. This sell signal occurred when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices would follow. This cascaded the stock to its March 18 low of $79.07.
On the rebound, the stock traded as high as $112.70 on April 29 before fading once again. Weakness last week held its weekly value level at $100.24. The upside on Friday was shy of Disney's monthly risky level at $112.81.
The weekly chart for Disney
The weekly chart for Disney is positive, with the stock above its five-week modified moving average of $107.53. The stock is below its 200-week simple moving average, or reversion to the mean, at $113.44. Disney has been below this key average since the week of March 13. The 12 x 3 x 3 weekly slow stochastic reading rose to 39.30 last week, up from 35.05 on May 8.
Trading strategy: Buy Disney stock on weakness to its weekly value level at $100.24. Reduce holdings on strength to the monthly risky level at $112.81.
How to use my value levels and risky levels: The closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.
The second quarter 2020 level was established based upon the March 31 close, and the monthly level for May was established based upon the April 30 close. New weekly levels are calculated after the end of each week, and new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels remain in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.