Chart Of The Day: Disney Shares Jump But Thinning Demand Could Weigh
Investing.com | Dec 30, 2021 01:33
Shares of Disney (NYSE:DIS) popped on Tuesday, gaining 1.57%. The boost also helped the Dow Jones Industrial Average, on which Disney is one of 30 listed stocks, finish the day higher as well, the only major US benchmark to close in positive territory yesterday.
Traders and investors piled into the entertainment giant's stock after the Burbank, California-based company announced it was reopening its Disney World water park after a nearly two year pandemic-triggered hiatus. Clearly, markets were excited by the potentially increased Disney revenue stream.
Still, the current heightened demand is predicated on the park's ability to remain open, something that's not necessarily a foregone conclusion as another COVID wave spreads around the world.
As such, DIS bulls could be facing some bearish pushback, visible now via the technicals.
Disney's stock closed Tuesday at the Dec. 10 high, increasing the odds for resistance. After the price plunged 20% in just three weeks, the current, tempered gain could prove to be a rising, bearish flag.
It's possible that following four straight weekly declines, bears could be covering shorts by garnering a 20% profit. The removed supply and additional demand of buying back the borrowed shares that might have been sold by bears in order to return them to brokers, pushed the price of the stock higher. However, since this demand isn't being driven by outright bullish sentiment, the move higher has been congested and somewhat incremental.
It's clear on the daily chart how volume spiked amid the preceding drop but dried out as the rise progressed, demonstrating the force is with the decline, not the advance.
The location of the profit-taking is textbook, as it follows the implied target of the H&S top. Its downside breakout fell through the price's uptrend, at the March 2020 bottom.
At that point the stock dropped into a bear market, having tumbled almost 26% from its Mar. 8 close that year. Now, the stock's bias is to the downside, with the next trendline coming from the 2009 bottom, currently at $90.
h2 Trading Strategies/h2Conservative traders should wait for the flag to complete with a downside breakout, with a penetration below the Dec. 20 low of $145.08, followed by a return move that retests the underbelly of the flag's resistance.
Moderate traders would wait for a downside breakout to close below $146 and wait for the corrective rally to follow for a better entry, if not for confirmation.
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Aggressive traders could risk a short position if the stock closes below the Dec. 10, $154.66 high (horizontal red resistance line). However, only traders who employ a strict trading plan should enter a trade, especially one they hope will beat the rest of the market. Here's an example:
Trade Sample
- Entry: $154
- Stop-Loss: $157
- Risk: $3
- Target: $124
- Reward: $30
- Risk-Reward Ratio: 1:10
Author's Note: Technical analysis isn't fortune-telling. It's a study based on statistics by gauging the trend and its trajectory. We do not expect to be right on every individual trade, including this one. Rather we look for positive overall returns. The generic sample simply showcases the basic requirements of a coherent plan. You must customize one that fits your budget, timing, and temperament. Until you learn how to do so, feel free to use our samples for educational purposes, but not profit—or you'll end up with neither. Guaranteed. And there's no money back.
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