NEW YORK (TheStreet) -- Shares of Walt Disney (DIS) may be on the verge of a deep pullback. On Monday, the stock sliced through a key trend line that links its April and May lows. This break of support may soon turn the last eight weeks of price action into a very ominous top.
A close below Disney's May low of $107.70 could spark a selloff that may quickly drive shares back down to the $103 area. This is a key support zone, one that patient Disney bulls should keep an eye on over the coming weeks.
Disney has looked quite vulnerable since it marked its 2015 high with an ugly downside reversal. After Monday's close, it is even more vulnerable. The stock has little room for error now. It would take a close back above the current June high of $111.80 to return the stock to consolation mode and put new highs back in sight. Considering the lack of bullish momentum since the beginning of last month, this appears highly unlikely.
As Disney hit its 2015 high on May 5, it had already given off signs of exhaustion. After hitting a new peak at $113.30, it traced out a downside reversal. In fact, the three straight heaviest volume days for Disney since its powerful earnings-inspired ramp on Feb. 4 have all been down days.
Investors were using the early May strength, following a 20% gain after the second-quarter earnings report, to take profits. If the May low falls, this might attract another wave of profit-taking. If you were patient enough to purchase Disney as it tested its 200-day moving average in October of last year, you would be sitting on a 32% gain.