DIS Stock: Solace for the Bulls?
Walt Disney Co (NYSE:DIS) is always on the leading edge of technology. It is probably why the name is as distinguished as it is, and has stood the test of time. The products and services that they produce are always state-of-the-art, and this can be seen in their product line and services that they offer, from toys and media productions to their theme parks. The recent performance in DIS stock has been quite disappointing, and this disappointment is compounded when equity indices are making new highs and Disney stock is not participating.
There may be some solace for the bulls, and the technical picture garnered from the Disney stock chart may help me explain. The following chart illustrates the trend that has caused much angst for DIS stock shareholders.
Chart courtesy of StockCharts.com
The downtrend that has developed is as clear as day, and is defined by the trend line (highlighted in blue). This line is created by connecting the peaks on a price chart. A downtrend is defined by lower lows and is confirmed by lower highs. A downtrend can easily be identified as the price moves from the upper left to the lower right. This is clear example of bearish price action. The shares will continue to trade within a bearish bias for as long as this trend remains intact.
The death cross that generated in January 2016 reaffirms this bias. A death cross is a bearish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses below a slower 200-day moving average (highlighted in red). Traders use this signal to confirm that a bear market is on the horizon. It is always wise to trade in the direction of this momentum indicator.
All of the news I have presented is bearish, but I have some good news to share. If we take a few steps back and look at the chart from a longer-term perspective, the bearish action I described above is actually embedded within a long-term uptrend. The following chart illustrates this phenomenon in DIS stock.
Chart courtesy of StockCharts.com
There are two parallel lines that define this bullish trend. The pattern is known as an ascending channel. An ascending channel has two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as time permits. A trend reversal, or an acceleration of a trend, would occur if the share price managed to trade out of the channel.
Disney stock is approaching the support line of the ascending channel. This line must hold in order for the bulls to have any chance of regaining control. Disney stock has not tested the support line many times but, the few instances when it did, it marked a low in the price of DIS stock and a new uptrend developed within the channel.
On the chart, you will notice the label “MACD” in the lower panel. A moving average convergence divergence (MACD) is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals.
In December 2015, DIS stock generated a bearish signal when the monthly MACD signal crossed in a bearish manner. This signal effectively halted any sustained gains in the price, and the downtrend developed as a result.
In order for the bulls to regain control, support must hold, defined by the ascending channel followed by a break of the downtrend line. If these events come to fruition, it will coincide with a bullish MACD cross and a golden cross, which will confirm and reaffirm the bullish premise.
The Bottom Line on Disney Stock
DIS stock is at best, consolidating with in an uptrend, and a major level of support is near. My bias on Disney stock at this juncture is neutral. My bias will switch depending on which way the share price breaks, as support and resistance are converging.