Back on May 11, shares of Disney (DIS) - Get Report were hit hard. The stock dropped over 4% that day on a huge jump in volume. This earnings-inspired breakdown began with a massive downside gap that dropped the stock to new monthly lows. Disney has been very weak since, and despite a slight bounce off last week's low, the stock remains extremely vulnerable.
For patient Disney bulls, lower entry levels may develop soon.
Disney's post-earnings breakdown was a sharp reversal from the pre-report action. The day before the news hit, Disney closed at fresh 2016 highs as it stretched its bull run off the early April lows to over 11%. On the May 10 close, the stock was showing signs that it was about to overtake a very heavy resistance zone near the Jan. 4 breakdown gap. Disney had peaked near this level, which included a downward-sloping 200-day moving average, in late April, but has given back little ground. This bullish setup changed dramatically in one fell swoop. Without question, the nasty flush on May 11 left behind an ominous top.
At Wednesday's close, Disney was still well above its May low. This level, just above $97.50, is key in the near term. If the new monthly lows are reached, a downside move could quickly gain steam. $2 below the May low is a major support zone. Disney held the $95.60 area at both its March and April lows. Patient investors should keep a close eye on this level. Another hold in this area would be very impressive and would offer a much lower-risk entry opportunity than currently available.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.