Dow component The Walt Disney Company (DIS) handily beat profit and revenue estimates last week while delivering an upbeat report on major initiatives, including the 2019 rollout of a streaming service that will compete directly with Netflix, Inc. (NFLX) and Amazon.com, Inc. (AMZN). The news triggered an initial buy-the-news reaction, lifting the entertainment giant within two points of 2015's all-time high, but sellers took control after the opening bell, triggering a modest reversal.

Mixed price action continued through Monday's broad-based rout, but the stock is now well positioned for the next stage of a major breakout that could mount $150 in 2019. Exact rally timing remains tough due to macro headwinds and more than three months of testing at three-year resistance, but support near $110 looks rock solid, allowing low-risk entries if the stock dips into that level in the coming weeks.

DIS Long-Term Chart (1998 – 2018)

The stock ended a long-term uptrend in 1998, stalling in the low $40s and dropping into a trading range with support in the low $20s.  An April 2000 breakout attempt failed, reinforcing resistance, while the subsequent downturn broke support, signaling a downtrend that intensified into 2002.  It bottomed out at $13.48 in August of that year, offering a productive buying opportunity, ahead of a steady uptick that stalled at the .786 Fibonacci sell-off retracement level in April 2007.

Aggressive sellers took control in September 2008, cutting the stock price in half into February 2009, when the decline ended just above the 2002 low. A V-shaped recovery wave reached the 2007 high at the start of the new decade, but it took another two years to mount stubborn resistance. The subsequent buying impulse booked the most prolific gains so far this century, mounting triple digits in 2015

ESPN troubles ended the rally a few months later, giving way to an intermediate correction that carved the outline of a symmetrical triangle pattern. A July 2018 triangle breakout has made limited progress, with rally waves reversing at 2015 and 2017 swing highs between $116 and $122. More importantly, a September decline found willing buyers at new support near $110, reinforcing a positive feedback loop that could generate a healthy uptrend into the new decade.

The monthly stochastics oscillator crossed into the overbought level in August 2018 and has held that bullish position into November. This tells us that buyers remain firmly in control, but the failure to hold gains after last week's earnings report raises a modest red flag, possibly signaling inadequate institutional sponsorship. That could change after the broad market turns higher because Disney should attract solid buying interest in a more supportive environment.

DIS Short-Term Chart (2017 – 2018)

The stock carved a big W pattern within the symmetrical triangle in 2017 and 2018, ejecting higher in July 2018. Price action since that time shows the outline of a volatile rising wedge, with support near $112 and resistance in the low $120s. The eight- to nine-point downdrafts within this pattern are limiting buying interest, but accumulation as measured by the on-balance volume (OBV) indicator has now reached the highest high since November 2015.

Slow but steady progress within the multi-year trading range predicts a healthy breakout, but bulls should watch for warning signs that could signal potential failure. For example, a decline through support at $110 that aligns with a monthly stochastics crossover should cause sleepless nights because that potent combination could presage a steep slide into $100 and a potential long-term top.

The Bottom Line

Disney price action remains on track for a major breakout above the 2015 high in the low $120s, but shareholders should remain alert for a character change that predicts a more bearish outcome. 

<Disclosure: The author held shares of Disney in a family account at the time of publication.>