Disney Rises on Reopening Plans - Here’s the Trade

Buy Disney on weakness to its weekly pivot at $118.26 and reduce holdings on strength to its semiannual risky level at $130.94.
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Walt Disney  (DIS) - Get Report shares traded higher Wednesday as the entertainment and media giant plans the reopening of Walt Disney World in Orlando, Florida. 

The stock opened at $123.68 Wednesday with the stock still below its 200-day simple moving average at $128.20.

Florida Gov. Ron DeSantis must approve Disney’s plan to reopen the theme park making sure that employees and visitors are protected from the spread of coronavirus. Here’s the full story as reported by TheStreet.

The Magic Kingdom and Animal Kingdom will likely open on July 11, and Epcot on July 15. 

Attendance will be limited and Covid-19 guidelines will be posted at entry locations.

Visitors may have their temperatures taken before entry. 

Shares of Disney opened Wednesday at $123.68 down 14.5% year to date and 19.4% below its all-time intraday high of $153.41 set on Nov. 28, 2019. 

The stock is also in bull market territory 56.4% above its March 18 low of $79.07.

Disney is a media giant and an important component of the Dow Jones Industrial Average. 

The stock is not cheap as its p/e multiple is 25.94 with a dividend of just 1.49%, according to Macrotrends.

The stock missed earnings-per-share estimates in two of the last four quarters including its latest report on May 5. 

The stock dipped to $98.86 on May 6 then rebounded to as high as $123.78 this morning.

Shares of Disney popped above their monthly pivot at $112.81 on May 18, then above their weekly pivot at $118.26 on Tuesday.

The Daily Chart for Disney

Daily Chart for Disney

Daily Chart for Disney

Courtesy of Refinitiv XENITH

Disney had been above a golden cross since April 9, 2019. This buy signal occurred when the 50-day simple moving average rose above its 200-day simple moving average.

The 200-day SMA provided a buying opportunity at $128.98 on Oct. 31. This tracked the stock to its Nov. 28 high of $153.41. A positive reaction to earnings on Nov. 7 provided the catalyst.

The stock began to move sideways to down until the downside cascaded lower on Feb. 24. This is when the stock gapped below its 200-day SMA.

Disney failed to hold its semiannual pivot at $130.29 on Feb. 25.

A death cross formed on March 6 which tracked the stock’s plunge to the March 18 low of $79.07.

On the rebound, the stock gapped above its monthly pivot at $112.81 on May 18. This was followed by a gap above its weekly pivot at $118.26 on May 26.

The stock lost its daily gain by 11 AM and could fill the gap down to weekly pivot at $118.26.

The Weekly Chart for Disney

Weekly Chart for Disney

Weekly Chart for Disney

Courtesy of Refinitiv XENITH

The weekly chart for Disney is positive with the stock above its five-week modified moving average of $111.81. 

The stock is also above its 200-week simple moving average or “reversion to the mean” at $113.66. The stock has been above this key average since last week.

The 12x3x3 weekly slow stochastic reading is projected to rise to 58.31 this week up from 47.67 on May 22.

Trading Strategy: Buy Disney on weakness to its weekly pivot at $118.26 and reduce holdings on strength to its semiannual risky level at $130.94.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close.

The monthly level for May was established based upon the April 30 close.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

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