Walt Disney Co: The Future Direction of DIS Stock Depends on This

DIS stockDIS Stock: The Moment of Truth

Walt Disney Co (NYSE:DIS) stock has been in the spotlight recently, as the company has been in headlines as one of the suitors of Twitter Inc (NYSE:TWTR). I am not even going to speculate how this would fit with Walt Disney Co’s business model, but the company has always been on the leading edge of technology. These rumors have been laid to rest, but I am sure if Walt Disney Co ever does decide to pursue such a venture, the company would no doubt find a way to monetize it.

Walt Disney Co has an incredible product lineup and pipeline of products. The company has numerous titles about to hit the box office, and expectations are high for these productions. The price of DIS stock, however, is not as enthused as some pundits are. As an analyst, I am concerned about the current state of stock prices and I believe that Disney stock has reached a moment of truth.

This moment of truth is best visualized by looking at the price chart, which is the tool I use to analyze potential investments.

The following DIS stock chart illustrates the trend that must hold for the bulls to rejoice.

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Chart courtesy of StockCharts.com

The chart above illustrates the big-picture trend in Disney stock. The technical pattern is known as an ascending channel. This channel is created by using two parallel lines that act as support and resistance. DIS stock has effectively oscillated within this channel since the stock price bottomed in 2009 after the financial crisis.

The trend line that has acted as support is now once again being tested, and this line must hold for the bull market to remain intact. All previous tests of this trend line have effectively ended, and further price weakness and a new trend higher have both begun.

The bottom panel on the chart above is labeled “MACD.” The 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. This indicator had its signal late last year, and it confirmed that a bear market had begun. The trend following this signal has been to the downside.

Before I set off any alarms, this indicator is a lagging indicator, and all previous bullish signals have come after the trend higher has already begun. The MACD indicator serves to only confirm the direction of the current trend, but it does little to alleviate any concerns I have about this trend line holding.

The following Disney stock chart illustrates the trend that the bears are hoping will break the ascending channel.

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Chart courtesy of StockCharts.com

There are two key distinct signals on this chart of Disney stock: the signal from the trend line and the signal generated from the moving average cross.

The first signal is stemming from the trend line. This trend line is sloping downward and it displays the bearish trend that is created by connecting the peaks on the price chart. This trend line has effectively rejected the price of DIS stock as it attempted to move higher. This trend line is very significant, and a break above it would be a great leap forward for the bulls.

The second signal stems from the death cross. A death cross is a signal generated when a faster 50-day moving average (highlighted in blue) crosses below a slower 200-day moving average (highlighted in red). This signal is used to confirm that the current bearish trend is still in force.

Both of these signals continue to be bearish, and DIS stock has once again tested the trend line and has failed to break above it. Any bullish case would require Disney stock to break this trend line as a first step.

The Bottom Line on Disney Stock

I am neutral on Disney stock, and I am awaiting the outcome of the two converging trend lines mentioned above. I cannot speculate what the catalyst will be, but I do know that, once a resolution has been attained, I will have a definite bias on DIS stock.