Dow component The Walt Disney Company (DIS) could offer an excellent buying opportunity in the fourth quarter ahead of outsized gains in 2020 and beyond. The Disney+ streaming service set for release in November should generate an impressive revenue stream, despite growing competition, while blockbuster movies continue to deliver huge box office receipts. In addition, the outlook is growing brighter at ESPN, which has been a noose around the company's neck since 2015, with its new subscription service reporting solid metrics.
The Mouse posted dramatic gains after breaking out above four-year resistance in April 2019, but the steady pullback since July's mediocre second quarter earnings report has undermined positive sentiment, dropping the stock nearly 12% off the all-time high above $147. It has also acted poorly during a string of Dow-led rally days, suggesting that the two-month correction still hasn't run its course.
DIS Long-Term Chart (1995 – 2019)
The stock broke out above multi-decade resistance in 1986, entering a powerful trend advance that accelerated at the end of 1994. "The Lion King" solidified Disney's rebirth as a Hollywood titan that year, triggering a buying spree that ended in 1998 at a split-adjusted $42.75. It failed a breakout above that level in the second quarter of 2000 and completed a double top breakdown after the Sept. 11 attacks in 2001, confirming the first downtrend since the early '80s.
The decline ended at an eight-year low in the lower teens in August 2002, giving way to a three-legged recovery effort that stalled at the .786 Fibonacci sell-off retracement level in the mid-$30s in 2007. The subsequent pullback went vertical during the 2008 economic collapse, dumping the stock within two points of the 2002 low in March 2009. That low print offered a dramatic buying opportunity, ahead of a bounce that completed a round trip into the prior high in 2010.
A breakout later that year failed in 2011, yielding a major decline, followed by a fresh uptick that reached new highs in 2013. Buyers took firm control into the August 2015 high at $122.08, ahead of a brutal sell-off triggered by unexpected viewership losses at the formerly bulletproof ESPN division. The stock lost 26% in just three weeks following the news, bounced strongly into the fourth quarter, and finally bottomed out in the mid-$80s in the first quarter of 2016.
Price action into March 2019 carved a massive triangle pattern that broke to the upside on heavy volume in April, after the company set a November release date for the streaming service. It gained 25% into July and reversed course, and it is now trading about 13 points above the breakout level, which should offer rock-solid support. However, the monthly stochastics oscillator is warning market players to stand aside for now, crossing into a sell cycle that is accelerating toward the oversold level.
DIS Short-Term Chart (2018 – 2019)
Price action between December 2018 and July 2019 carved an Elliott five-wave rally set, with a massive continuation gap between $118 and $126. A Fibonacci grid stretched across this pattern places current action at the 200-day exponential moving average (EMA) and .382 retracement level, setting a trading floor that's likely to generate bottoming calls. However, the monthly stochastics oscillator is telling a more bearish tale, raising the odds that the decline will enter the continuation gap and trade into the lower $120s before generating a reliable buying signal.
The on-balance volume (OBV) accumulation-distribution indicator broke out above the 2015 high with price in April and also turned lower in July. It matched the prior high last month when the stock was trading seven points lower, signaling loyal sponsorship. However, the distribution phase has now resumed, suggesting that it will reach support at the red line when price trades into the gap, with the selling climax setting the stage for the next leg of this year's major breakout.
The Bottom Line
Walt Disney stock could lose ground in coming weeks, but the decline should offer a low-risk buying opportunity ahead of a trend advance that stretches toward $200.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.