Disney's (DIS) breakdown may have finally run its course. At last week's low, the stock had fallen nearly 10% from its late April peak. This steep and volatile sell off retraced one-third of the powerful rally that began last October. DIS has been rebounding of late and my have a solid bottom in place. For patient investors, a low-risk entry opportunity for this B+ rated stock is developing.
After stretching the post-election gains to over 20%, DIS began to show signs of exhaustion in mid April. In early May, it was becoming clear the pullback that followed the April peak would not be shallow. After two days of big loses, the stock rested just below the April lows before taking another post-earnings hit on May 10. DIS began a second down leg that day, one that would carry shares back down to major support near last year's high.
Last week's low reached the lower band of a major support zone that runs from $105.00 to $107.00. This key area includes DIS' multimonth 2016 highs near $106.75 near the upper band and the January 2017 lows at the lower band. Disney investors should consider the stock a low-risk buy while shares remain in this area. With the stock now deeply into oversold territory a healthy rebound could develop. On the downside, a close below $103.00 would violate the 200-day moving average signalling a more drawn out bottoming process is ahead.