The Walt Disney Company (DIS) has chart setups that favor a positive reaction when the Mouse House reports earnings after the closing bell on Tuesday, Feb. 5. The stock closed Monday, Feb. 4, at $111.80, up just 2% so far in 2019 and up 11.4% from its Dec. 24 low of $100.35. Looking at the longer term, Disney stock set its all-time high of $122.08 during the week of Aug. 7, 2005, and then declined into a bear market, plunging 29.3% to a multi-year low of $86.25 set during the week of Feb. 12, 2016. I show this range and the Fibonacci retracement levels on today's weekly chart.
Disney lost its mantra as being a forever core holding in an investment portfolio due to the increasing costs associated with the sports networks under the ESPN banner. Here we are three and a half years later in recovery mode as customers cut the cord to cable TV in favor of Disney's ESPN+ streaming service. Now, investors can focus on the many other benefits of Disney returning to its role as a core portfolio member.
Disney has a market-neutral P/E ratio of 15.72 and a dividend yield of 1.58% according to Macrotrends as the entertainment giant puts the finishing touches on its earnings report to be released after the closing bell on Tuesday, Feb. 5. Analysts expect the company to report earnings per share between $1.57 and $1.62. In focus is the plan to launch Disney+, which is a streaming video service, along with the progress on closing the deal to buy much of Twenty-First Century Fox, Inc. (FOXA). We know that the cost of admission to theme parks is on the rise and that crowds are willing to pay the higher prices.
The daily chart for Disney
The daily chart shows that the stock has been above a "golden cross" since July 16, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. This led to the 2018 high of $120.20 set on Nov. 9.
The close of $109.65 on Dec. 31 was the input to my proprietary analytics, resulting in the horizontal lines on the chart. My quarterly pivot is the key level to hold at $110.72, with my semiannual risky level at $118.95. The close of $111.30 on Feb. 1 resulted in a monthly risky level above the chart at $125.05. My weekly value level is $108.18.
The weekly chart for Disney
The weekly chart for Disney is positive, with the stock above its five-week modified moving average of $111.25. The stock is above its 200-week simple moving average, or "reversion to the mean," at $105.42. The 12 x 3 x 3 weekly slow stochastic reading is expected to rise to 53.51 this week, up from 50.25 on Feb. 1.
The horizontal lines are the Fibonacci retracement levels from the August 2015 high of $122.08 to the February 2016 low of $86.25. Weakness since the 2018 high of $122.20 set on Nov. 9 stayed above the 38.2% retracement of $99.97 on Dec. 24. The rebound was back above the "reversion to the mean" at $105.42 and above the 50% retracement at $104.21 and then the 61.8% retracement of $108.46. This is a positive setup for Disney's upcoming earnings report.
Trading Strategy: Buy Disney shares on weakness to my quarterly pivot at $100.72, the 200-day simple moving average at $109.82 and my weekly value level at $108.18. Reduce holdings on strength to my semiannual risky level of $118.95.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.