The Walt Disney Company (DIS) has dropped into the 25th slot in Dow component relative strength after a tough quarter generated the most aggressive selling pressure in two years in reaction to an underperforming ESPN division. The cord-cutting shortfall unnerved shareholders, who lifted the stock to a 17-month high in April, applying pressure that ended at a seven-month low in July. A steady uptick off that level has now eased into a holding pattern ahead of the Aug. 8 earnings release.

The stock has remounted the 50- and 200-day exponential moving averages (EMAs) following more than two months below those levels, generating a price floor near $106 that could support even higher prices after earnings. However, intermediate and long-term cycles are flashing mixed messages, with a weekly stochastics buy cycle conflicting with a monthly sell cycle. Taken together, this combination should support a measured bounce that requires aggressive profit taking. (See also: Disney Earnings: Can ESPN Make a Turnaround in Q3?)

DIS Long-Term Chart (1990 – 2017)

 

The stock ticked higher in a steady uptrend into the middle of the 1990s and took off in a more vertical advance in reaction to a long string of animated hits. The rally finally topped out at $42.75 in 1998, giving way to a pullback followed by unsuccessful 1999 and 2000 breakout attempts. Four-year range support at $23 broke in 2001, dropping the stock into a downtrend that posted an eight-year low at $13.48 in 2002.

Disney stock underperformed badly during the mid-decade bull market, failing to mount broken support until 2006. It added a few points into the second half of 2008 and broke down once again, joining world markets in the economic collapse. The stock bounced within two points of the 2002 low in March 2009 and completed the round trip into 1998 resistance in 2011, ahead of a 2012 breakout that posted dramatic gains into August 2015. Price action since that time has carved a complex horizontal trading range. (For more, see: Behind Disney's 240% Rise in 10 Years.)

The monthly stochastics oscillator rolled into a long-term sell cycle in April 2017 and could reach the oversold level in the next one to three months. The stock has turned sharply higher within two months each of the past three times that the indicator has dropped to this level (red line), raising the odds for a rally into year end. Bulls could start on that effort with a post-earnings push above $110.

DIS Short-Term Chart (2015 – 2017)

 

The uptrend hit an all-time high in 2015 and rolled into a vertical decline triggered by shrinking sports viewership at ESPN, a profitable division that analysts expected to grow despite the millennial transition into net-based programming. Billion dollar Marvel and "Star Wars" box office receipts failed to overcome cord-cutting anxiety into the second half of 2016, when the stock lifted off two-year range support in the lower $90s, generating a recovery wave that posted the second lower high since 2015 in April 2017. (See also: Is It Time to Buy Disney Stock?)

The August 2015 trading range between $99.78 and $122.08 contained price action into a February 2016 breakdown that stretched support into the upper $80s, ahead of quick recovery wave. The stock has not touched either end of the range-bound pattern in the past 18 months, with a higher low and lower high generating a holding pattern that will eventually give way to a long-term trend, higher or lower. Odds are now equally divided between a range breakout with a trend advance above $150 and a range breakdown with a multi-year decline into the $40s.

The Bottom Line

Disney stock is back on top of intermediate and long-term support after a second quarter decline dropped the stock more than 13 points. This positioning should offer a short-term technical tailwind for a recovery rally toward $110 following the Aug. 8 earnings report, but aggressive profit taking is recommended because adverse cycles may slow or stall progress. (For additional reading, check out: Can Disney's Impressive Movie Line-Up Drive Stock Higher?)

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

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