Buy Disney as a Core Portfolio Holding - Charts Show When

Buy Disney down to its annual pivot at $138.93 as new highs are likely and risky levels are low.
By Richard Suttmeier ,

Shares of Walt Disney (DIS) - Get Report have been trading above its annual pivot at $138.93 since June 13 and set its all-time intraday high of $143.51 on June 18. Given strong technical momentum, the stock is poised for higher highs, as my proprietary analytics do not show any risky levels at this time.

The problems associated with ESPN are in the rear-view mirror, featured movies have been successful, higher ticket charges at the theme parks have not slowed attendance, and next month a Star Wars theme park will open near Orlando, Fla.

Back on April 3, I recommended that investors should "Buy Disney as a Core Portfolio Holding" and I reiterate this call now. Back on April 3, the stock closed at $112.52 and the stock gapped higher on April 12 when the company announced that it would launch its streaming video service. The stock traded as high as $142.37 on April 29 then dipped to $130.55 on May 13 after positive earnings May 8. At the April 29 high, its annual pivot has been a magnet and if weakness holds, the annual pivot at $138.93 new highs are projected.

The stock closed Tuesday at $142.54, up 30% year to date and in bull market territory 42% above its Dec. 24 low of $100.35. The stock is not cheap as its P/E ratio is 20.53 with a puny dividend yield of 1.26%, according to Macrotrends.

The Daily Chart for Disney

Courtesy of Refinitiv XENITH

The daily chart shows the confirmation of a "golden cross" on April 4 when the 50-day simple moving average rose above the 200-day simple moving average to signal that higher prices would follow. The 50-day and 200-day SMAs are now at $136.57 and $119.44, respectively. The close of $109.65 on Dec. 31 was the input to my proprietary analytics and the annual pivot remains in play at $138.93. The close of $139.64 on June 28 was an important input to my analytics. The results are monthly, quarterly and semiannual value levels at $131.57, $122.25 and $111.33, respectively.

The Weekly Chart for Disney

Courtesy of Refinitiv XENITH

The weekly chart for Disney is positive but overbought with the stock above its five-week modified moving average of $137.27. The stock is well above its 200-week simple moving average or "reversion to the mean" at $107.18 last tested as a buy level during the week of Dec. 28. The 12x3x3 weekly slow stochastic reading is expected to rise to 87.49 this week up from 86.26 on June 2. If this reading rises above 90.00 the stock becomes an "inflating parabolic bubble," which would be a warning to reduce holdings before the bubble pops.

Trading Strategy: Buy Disney on weakness to its annual pivot at $138.93 and add to positions on weakness to the monthly, quarterly and semiannual value levels at $131.57, $122.25 and $111.23, respectively. Do not reduce holdings until the weekly stochastic reading rises above 90.00.

Disney is in Jim Cramer's Action Alerts PLUS member club.

July 4th Sale: Join Jim Cramer's Club for Investors and Save

Get 57% off on your membership to Jim's Action Alerts PLUS club for investors.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week; the monthly level changes at the end of each month. The quarterly semiannual levels were changed at the end of June. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

Loading ...