NEW YORK (TheStreet) -- Following Disney's (DIS) - Get Walt Disney Company Report healthy bounce off last Monday's early low, the stock continued to rebound through the end of the week. At Friday's peak, the stock was up over 14% from its Monday bottom.
This powerful recovery has lifted the stock back up to the bottom layer of a heavy resistance area. In the near term, further upside may be difficult for Disney. For patient investors, a pullback from this major resistance zone will provide lower entry levels.
At last Monday's low, Disney had fallen over 25% from its Aug. 4 peak, an incredible amount of damage in a very short time. Midway through this post-earnings breakdown, which began with a huge downside gap the morning of Aug. 5, Disney found support just above its 200-day moving average. The stock spent the next two weeks consolidating until the open on Aug. 20. Disney began that session with another downside gap ushering in a new down leg in the process. After three straight days of heavy selling pressure, including the early action last Friday, the stock had returned to its 2015 low set back in February.
Disney left behind layers of resistance following its Aug. 20 selloff. The top band of this zone sits just below $105.80 and marks the downside gap left behind that morning. Just below is the stock's 200-day moving average at $104.70. Nearby is Disney's initial post-earnings low, set on Aug. 6, at $104.25. Late last week, the stock began to challenge the lower band of this zone, its March low just below $103.
It's very unlikely that Disney has the underlying strength to move beyond the $106 level without significant basing action. Disney will need a much more solid bottom than the spike low left behind last week.
For patient bulls, remaining on the sidelines while shares battle the $103-to-$106 area will allow for lower entry. A dip back down to the $96-to-$94 area, which includes the 2014 high as well as the second-quarter earnings breakout gap, would offer a much lower-risk entry opportunity. A solid base built in this area could provide the footing for a new bull leg.
Disclosure: At the time of publication, author was long Disney.