Shares of Disney (DIS) - Get Report and Netflix (NFLX) - Get Report have underperformed the S&P 500 by 5% and 13% respectively year-to-date. Now these usual outperformers have been consolidating in distinct technical patterns and could be preparing to make up ground on the broader market and resume their leadership roles.
The Disney chart shows the stock breaking below both its 50- and 200-day moving averages in December last year and then this year consolidating in an inverse head and shoulders formation with neckline resistance at the $97.50 level. This resistance is being reinforced by the downtrend line formed by the three-month decline. Moving average convergence/divergence made a bullish crossover as the left shoulder of the pattern was forming and has been tracking higher, and the relative strength index crossed above its 21-period average as the head was forming and has moved back up to its centerline. Chaikin money flow, a measure of the 20-day average of the accumulation/distribution line, is well above its centerline and reflecting institutional level buying interest. The head and shoulders pattern projects a price target that would take the stock back above its 200-day average to the $107.50 area.
Netflix also saw a decline off its December high and has spent most of this year consolidating in a cup and handle formation below $95 rim line resistance. The vortex indicator is designed to identify early shifts in price momentum using green and red line crossovers, and it is currently suggesting that a new uptrend is under way. Moving average convergence/divergence made a bullish crossover and is tracking higher. The accumulation/distribution line is above its signal average, and the money flow index, a volume-weighted momentum measure, has crossed above its centerline. Cup and handle resistance is intersecting with the downtrend line off the December high, and a breakout projects into the $110 area.
A close in upper candle range above pattern resistance on either chart is a good long entry point, using a trailing percentage stop.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.