Dow component The Walt Disney Company (DIS) has set off a long-term buying signal after reports that Twenty-First Century Fox, Inc. (Class A: FOXA; Class B: FOX) has opened discussions to sell significant assets that include its studio division and FX cable networks. Many Wall Street analysts view the news as a potential godsend for Disney's struggling media networks division as well as a perfect opportunity to add to its world-class content library.

Market players are also looking past the current catfight between Disney and the film critic community following an exposé in the LA Times on the company's sweetheart deals with the City of Anaheim. The Mouse issued an early-screening ban on the newspaper in reaction to the report, igniting massive blowback that included pledges by the country's top critics to withhold reviews of new film releases. (See also: Sky Falls as Report of Disney-Fox Talks Increase Deal Uncertainty.)

DIS Long-Term Chart (1990 – 2017)

The stock entered a powerful uptrend in the second half of the 1980s, peaking at a split-adjusted $11.34 in 1989. It cleared resistance in 1992 and stair-stepped higher into May 1998, when it posted a major top in the lower $40s. Sideways action into the new millennium generated a test of that level in April 2000, followed by a decline that broke five-year support in the low $20s following the Sept. 11 attacks. Selling pressure continued into the deep August 2002 low at $13.48, marking the lowest low in the past 15 years.

Disney shares gained ground through the mid-decade bull market but failed to reach the prior high, stalling in the mid-$30s in May 2007, and collapsed with world markets one year later. The decline found support less than two points above the prior low in March 2009, marking a historic buying opportunity ahead of a steady recovery wave that reached the 2000 high in 2011. A 2012 breakout caught fire, generating prolific gains into the August 2015 all-time high at $122.08.

Volatility then escalated rapidly, generating a series of broad price swings typical in an intermediate correction. Support near $90 finally took hold in October 2016, while the healthy uptick into April 2017 failed to reach the 2015 high, stalling above $116 and giving way to a steady decline into September's 10-month low at $96.26. The stock carved a base into November and broke out, generating a bullish monthly stochastics​ crossover that predicts at least six to nine months of relative strength. (For more, see: Disney Investors Suddenly Envision a Streaming Empire.)

DIS Short-Term Chart (2015 – 2017)

Weakness at Disney's ESPN division triggered an August 2015 reversal that established a major top, while the decline into February 2016 carved support that has not been breached. Two lower highs and a higher low since that time have carved a contracting pattern that has now taken the shape of a symmetrical triangle. Pattern resistance limits immediate upside to the $113 to $115 price zone, while a breakout above that level would set off another round of buying signals. Conversely, a breakdown through triangle support near $96 may generate a long-term downtrend.

On-balance volume (OBV) tracks money flow, offering insight into hidden obstacles and opportunities. A long-term uptrend ended with price in the third quarter of 2015, giving wave to an aggressive distribution wave that continued into October 2016. Bottom-fishers then generated a bounce that stalled below the prior high in May 2017, ahead of a steady downturn into August. The indicator held well above the 2016 low, supporting a secondary bounce that has now reached the red trend line of declining highs. A breakout would generate supplementary buying signals that improve the broad technical tone while predicting more rapid price gains. (See also: Disney's Netflix Competitor Could Be Worth $25B: Morgan Stanley.)

The Bottom Line

Disney stock has lifted off a deep September low, spawning a long-term buying signal that predicts an advance toward resistance between $113 and $115. On-balance volume may offer market players a low-risk buying opportunity when it breaks out above the two-year trend line of lower highs. (For additional reading, check out: Top 5 Companies Owned by Disney.)

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

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