DIS Stock: Testing Critical Support
Walt Disney Co (NYSE:DIS) stock suffered a setback in late April, which sent this investment spiraling towards lower prices. This setback was the result of poor performance from its ESPN division as the number of subscribers continues to dwindle. DIS stock is currently testing a critical level of price support and it must find its footing above this level.
Fortunately for the bulls, the weakness that gripped the DIS stock price is occurring while a number of technical indicators are still in bullish alignment, which is being further supported by a bullish backdrop. This increases the odds that Disney stock will stage an advance off this critical level of price support.
If Disney can find its footing at current levels, it would suggest that the price weakness experienced in the last few weeks was just a normal pullback within a much larger bullish trend, one that would now be ready to resume its path of least resistance towards higher prices.
The following Disney stock chart illustrates a number of technical indicators in bullish alignment, which continue to suggest that holding a bullish view on DIS stock is still warranted.
Chart courtesy of StockCharts.com
This bullish view was first suggested in November 2016, when Disney shares finally gathered enough strength to break above a downtrend line. This downtrend line was created by connecting the significant lows on the stock chart, and it was acting to contain the price of this investment since November 2015, after the share price peaked at $118.11. This downtrend line defined the bear market that consumed this investment. Breaking above it suggested that this bearish trend had met its demise and a new bullish trend was born.
The implications suggested by the breakout were reinforced by a golden cross that was generated in December 2016. A golden cross is a bullish signal that is produced when the faster 50-day moving average crosses above the slower 200-day moving average. This signal indicates that the stock price is advancing and it is why this indicator is used confirm that a bull market is in development.
These indications correctly assumed that a bull market was in development. Disney’s share price went on to hit a high of $115.61 before this sell-off ensued. The selling in Disney stock intensified when the stock price breached the 50-day moving average, and the share price is just hairs away from testing the 200-day moving average.
The 200-day moving average, as a standalone indicator, is very significant because it defines a level that acts as the dividing line between a healthy investment in a bull market and an unhealthy investment in a bear market. Distinguishing between these two polar opposites is quite easy, because a stock trading above the moving average is bullish, while one trading below it is bearish.
The moving averages that generated the golden cross are in bullish alignment, and this increases the odds that DIS stock will bounce off the 200-day moving average as it is tested from above.
Testing the 200-day moving average from above will coincide with a longer-term level of support that is illustrated on the following Disney stock chart.
Chart courtesy of StockCharts.com
This DIS stock chart illustrates that a long-defined bullish backdrop has been supporting an advance in Disney shares. This bullish backdrop began after the conclusion of the financial crisis in 2009.
This bullish backdrop is best illustrated using an ascending channel. This ascending channel contains two parallel upward-sloping trend lines that serve to define upper resistance and lower support. Since the conclusion of the financial crisis, DIS shares have been oscillating within the channel, and I feel comfortable saying that as long as the share price is contained within this channel, the bull market that began in 2009 is set to continue.
This ascending channel is currently coming to a test as the share price is testing the lower trend line, which has acted as a level of price support. In order to assume that the bull market is intact and higher prices are likely to continue, the share price must bounce off this extremely important level of price support. The fact that the 200-day moving average coincides with this level only serves to reinforce how important it is for the share price to remain above it. These coinciding levels are also serving to suggest that price support is well established at this level, and a significant bounce can manifest.
The moving average convergence/divergence MACD indicator which is located in the lower panel of the stock chart, is in bullish alignment, which is supportive of an advance. To clarify, MACD is a momentum indicator that uses the crossing of a signal-line to distinguish between bullish and bearish momentum. A bullish cross suggests that bullish momentum is influencing the trading action in Disney stock, which is paving the road towards higher prices. A bearish MACD cross is the exact opposite and it carries bearish implications.
A bullish cross was generated earlier this year, and it remains in bullish alignment, which is supportive of higher stock prices. The last time a bullish cross was generated in 2012, DIS stock appreciated to the tune of 202.56%. As a result, I do not take the implications suggested by this indicator lightly.
Bottom Line on Disney Stock
The bull market in Disney stock is predicated on its ability to stay above a critical level of price support that it is currently testing. The indications on the DIS stock chart are in bullish alignment, which increases the odds that support will hold and an advance will be staged.