Dow component The Walt Disney Company (DIS) is struggling so far this January despite an impressive uptrend that has lifted the S&P 500 index and other broad benchmarks to all-time highs. This sub-par performance has captured the attention of market technicians, who are concerned that insiders and other big shareholders feel less bullish about Disney stock's 2020 outlook, despite last year's superior 31% return.

The company's successful Disney+ launch in November underpinned bullish sentiment in the fourth quarter, while "Frozen 2" made history, becoming the highest-grossing animated movie ever. At the same time, "Star Wars: The Rise of Skywalker" opened to mixed reviews and has underperformed lofty expectations, lowering analyst bullishness because Disney box office projections are always priced for perfection.

However, the underlying cause for January weakness may not have anything to do with box office receipts. Rather, steaming service subscriber metrics have now been factored into the stock price, requiring upside surprises to increase potential valuation. That may not be in the cards because an unknown supply of subscribers wanting to see "The Mandalorian" and Baby Yoda could jump ship in coming months to take subscriptions in one of many new streaming services.

Market players wanting to gauge Disney's short-term outlook should watch the July high at $147 because the stock mounted that barrier after November subscriber numbers were published. It broke this new support level in December, setting off a failed breakout, and it hasn't recovered in the first three weeks of 2020. The stock has also tested the 50-day exponential moving average (EMA) at $144 multiple times during this period, telling us that a breakdown will set off a wave of sell signals.

DIS Long-Term Chart (1992 – 2020)

Long-term chart showing the share price performance of The Walt Disney Company (DIS)

A 1992 breakout above three-year resistance at a split-adjusted $11.34 generated a healthy uptrend, lifting the stock into the low $40s in 1998. A 2002 breakout attempt failed, triggering a reversal and persistent downtrend that finally found support at an eight-year low in the mid-teens in 2002. It posted modest gains during the mid-decade bull market before stalling about seven points under the prior peak in 2007.

A vertical decline during the 2008 economic collapse ended less than two points above the 2002 low, setting the stage for a steady recovery wave that completed a round trip into the 2007 high in 2010. A 2011 breakout failed, but committed buyers returned in force in 2012, generating sustained upside and a successful breakout that presaged the strongest gains in more than 30 years.

The uptrend topped out in the summer of 2015 after the company reported unexpected subscriber losses at the ESPN broadcast division. It then dropped into a broad symmetrical triangle pattern, finally breaking out in the second quarter of 2019 in reaction to the Disney+ streaming service announcement. Bulls took firm control into November's all-time high at $153.41, ahead of an orderly decline that has posted greater-than-expected selling pressure.

The monthly stochastics oscillator crossed into a buy cycle from the panel's midpoint in December and still hasn't reached the overbought zone. This placement keep bulls in charge, but multiple whipsaws in this often-reliable relative strength indicator lower confidence in the current buy signal. Even so, price action since December looks like garden-variety profit-taking on this monthly chart, suggesting that buyers will return in force and save the day before additional technical damage raises doubts about the uptrend.

The Bottom Line

Walt Disney has underperformed the S&P 500 index so far in 2020, trading close to the closing print posted on Dec. 31. Shareholders and sidelined investors should watch resistance at $147 and support at $144 closely to gauge the risk generated by this bearish divergence.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.