Walt Disney Co. (DIS) - Get Walt Disney Company Report has settled into a buy zone after a long period of consolidation. The stock set its all-time intraday high of $122.08 during the week of Aug. 7, 2015, when the problems with ESPN came to light. The stock declined 29% to a low of $86.25 set during the week of Feb. 12, 2016. This range has been consolidated since then.
During the fourth quarter of 2018, Disney declined 16.5% from a secondary high of $120.20 set on Nov. 19 to its low of $100.35 set on Dec. 24. The stock is trading between its monthly value level for April at $112.07 and this week's risky level at $113.68, which is the buy zone. The stock has been rising along its "reversion to the mean" since the week of Sept. 8, 2017 and this level now at $105.53 is the level at which to add to this position on weakness.
Disney has beaten earnings estimates the past two quarters. The report released on Nov. 8 was followed by the secondary high set on Nov. 9. The report released on Feb. 5 was followed by a gap higher on Feb. 6 that was not sustained. Today we learned that Disney and Marvel's film "Avengers: Endgame" set a first-day U.S. sales record. On Tuesday, Rosenblatt Securities reinstated coverage with a buy rating and a price target at $150. I show an annual risky level at $138.93.
Disney's costs associated with ESPN are no longer an issue. Customers who cut the cord to cable TV are becoming subscribers of Disney's ESPN+ streaming service. Investors can now focus on the many other businesses as Disney becomes a core portfolio member. The stock is reasonably priced with a P/E ratio of 16.00 and dividend yield of 1.56%, according to Macrotrends.
Disney is in Jim Cramer's Action Alerts PLUS member club. The team recently sent out this note to subscribers:
"We see upside resulting from Disney's direct to consumer efforts via ESPN+ and Disney+ and are happy to ride out the associated investment cycle. Additionally, we view the integration of Fox assets as another catalyst as progress is made given the acquisition brings with it programming across six continents, reaching over 1.8 billion consumers that speak roughly 50 different languages, as well as the rights to Start India, India being one of the fastest growing countries in the world and all of the domestic content, plus an additional 30% ownership of Hulu, bringing their total Hulu ownership to 60%."
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The Daily Chart for Disney
Courtesy of Refinitiv XENITH
The daily chart for Disney shows the secondary decline of 16.5% from the Nov. 9 high of $120.20 to the Dec. 24 low of $100.35. Since this stock has been in a longer-term trading range and not trending, I chose to ignore "death cross" and "golden cross" formations. The close of $109.65 on Dec. 31 was the input to my proprietary analytics and resulted in semiannual and annual risky levels at $118.95 and $138.93, respectively. The close of $111.03 on March 29 was the latest input to my analytics and this resulted in a quarterly value level at $101.33, a monthly pivot at $112.07 and a weekly risky level at $113.68.
The Weekly Chart for Disney
Courtesy of Refinitiv XENITH
The weekly chart for Disney is neutral with the stock above its five-week modified moving average of $112.15. The stock is above its 200-week simple moving average or "reversion to the mean" at $105.53. The 12x3x3 weekly slow stochastic reading is expected to slip to 60.55 this week down from 69.07 on March 29. Note how many times the 200-week SMA had been tested since the week of Sept. 8, 2017 when the average was $97.76.
Trading Strategy: Buy with the stock between its monthly pivot at $112.07 and its weekly risky level at $113.68. Reduce holdings on strength to its semiannual risky level of $118.95 and its annual risky level at $138.93.
How to use my value levels and risky levels:
Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels were based on the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March. 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 already. 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.
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.