DIS Stock: Heading Higher
Walt Disney Co (NYSE:DIS) reported earnings on February 7, and the results were mixed. The company managed to beat on the bottom line, but the top line fell short of expectations.
The revenue miss was due to continued pressures from the ESPN network division as consumers continue to shy away from cable. The initial reaction saw Disney stock trade lower by two percent but, by the following trading day, this potential drag was completely erased, as DIS stock had no problems shrugging this news off and closing the day higher.
This ability to shrug off a poor earnings report comes as no surprise. I have been bullish on Disney stock since November 2016, after indications from the Disney stock warranted this view. This view is completely predicated on the patterns and indicators that are generated on the DIS stock chart.
The following Disney stock chart illustrates the catalyst that created my bullish view on DIS stock.
Chart courtesy of StockCharts.com
I have been watching Disney stock for quite some time, waiting for a resolution to a downtrend line that had contained the price of Disney stock since it peaked in 2015. This trend line, created by connecting the peaks on the DIS stock chart, defines resistance in this bearish trend. Once a trend like this one is established, it is quite effective to use. The notion is that, as long as the price remains below this downtrend line, a bearish outlook is warranted.
In November 2016, Disney stock was finally able to break above this trend line and this feat was the trigger that defined my new bullish view on Disney stock.
This bullish view has proven to be a fruitful venture because, as soon as this trend was broken, Disney stock began to climb, and Disney stock has not looked back yet.
This new bullish view has been supported by bullish price action, which consists of a trend that contains higher highs and higher lows, as well as bullish indicators that continue to mount.
In December, a golden cross was generated. A golden cross is a bullish indicator that is generated when the faster 50-day moving average (highlighted in blue in the above chart) crosses above the slower 200-day moving average (highlighted in red). This indicator is used by traders and analysts to confirm that a bull market is on the horizon, and it supports the notion of further gains.
The following stock chart illustrates the long-term bullish trend in DIS stock.
Chart courtesy of StockCharts.com
The long-term bullish trend in Disney stock that began in 2009, after the conclusion of the financial crisis, is defined by using an ascending channel. This channel is created by using two upward-sloping parallel trend lines, where one trend line acts as support and the other trend line acts as resistance. This channel has effectively contained the price of Disney stock.
As long as DIS stock stays within the confines of this channel, this bull market is set to continue. Support outlined by this channel was being tested late last year, but the break above the downtrend line has suggested that the path of least resistance is toward higher prices, and this puts resistance outlined by the ascending channel as the next logical price objective.
The moving average convergence/divergence (MACD) indicator in the lower panel of the above chart is converging, and a bullish cross can occur in the month ahead. MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum. Every bullish run that eventually tested resistance (outlined by the ascending channel) began after a bullish cross was generated.
Bottom Line on Disney Stock
I am bullish on Disney stock because there are indications that the recent bullish run that began in November 2016 is only the beginning of a much larger bullish move in DIS stock that is nowhere near its conclusion.