How to Trade Disney as It Furloughs Employees

Buy Disney on weakness to its weekly value level at $91.41 and reduce holdings on strength to its monthly risky level at $110.96.
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Walt Disney  (DIS) - Get Report will begin to furlough many employees on April 19. 

The stock is in bear market territory but closed Thursday with a gain of 22.6% since its March 18 low of $79.07. 

My call is to buy the stock on weakness to its weekly value level at $91.41 and reduce holdings on strength to its monthly risky level for April at $110.96.

Disney employs more than 200,000 people around the world. With all theme parks closed, many employees will be temporarily let go in about two weeks.

They will remain on staff to maintain healthcare benefits. For the details on the news, read TheStreet's coverage.

The stock closed Thursday at $96.97, down 33% yeare to date and in bear market territory 36.8% below its all-time intraday high of $153.41 set on Nov. 26, 2019. 

The stock is 22.6% above its March 18 low of $79.07.

Disney set its all-time high following a positive reaction to earnings released on Nov. 7, 2019. 

The stock also had a positive reaction to earnings on Feb. 4, but Feb. 5 was a daily “key reversal.” This happens when the stock sets a high then closes below the prior day’s low.

Disney should be benefiting from its streaming video service with families on lockdown at home. This does not offset the total drain on the company given theme park closures and empty theaters around the world.

The stock is reasonably priced with a p/e multiple of 17.09 and dividend yield of 1.85%, according to Macrotrends.

The Daily Chart for Disney

Daily Chart For Disney

Daily Chart For Disney

Courtesy of Refinitiv XENITH

The daily chart shows that Disney had been above “golden cross” that was confirmed on April 9, 2019. This occurred when the 50-day simple moving average rose above the 200-day simple moving average to signal that higher priced lie ahead.

When this buy signal is on the chart the strategy is to buy weakness to the 200-day SMA. On Oct. 31 this average was tested at $128.98. This tracked the stock to its all-time high of $153.41 set on Nov. 26.

On Feb. 24 the “golden cross” ended as the stock gapped below its 200-day simple moving average (in green).

On Feb. 25 the stock gapped below its semiannual pivot at $130.29. This breakdown tracked the stock to its March 18 low of $79.07.

The rebound off the low failed at $107.73 on March 26. This puts the stock below its monthly risky level for April at $110.96. The second quarter risky level is $132.94.

My call is that the stock will hold its weekly value level at $91.41.

The Weekly Chart for Disney

Weekly Chart For Disney

Weekly Chart For Disney

Courtesy of Refinitiv XENITH

The weekly chart for Disney is negative but oversold with the stock below its five-week modified moving average of $109.86. 

The stock is also below its 200-week simple moving average or “reversion to the mean” at $113.21. This average was crossed to the downside during the week of March 13.

The 12x3x3 weekly slow stochastic reading is projected to slip to 19.07 this week falling below the oversold threshold of 20.00.

Trading Strategy: Buy Disney on weakness to its weekly value level at $91.41 and reduce holdings on strength to the monthly risky level at $10.96.

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.

Second quarter 2020 and monthly levels for April were established based upon the March 31 closes.

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.