Here's Why Disney Is a Trade, Not a Long-Term Hold

Walt Disney (DIS) is a benchmark component of the Dow Jones Industrial Average (INDU) , but that does not mean that the stock should be considered as a long-term portfolio holding. Disney has experienced extreme volatility in reaction to earnings since August 2015, and shares remain in bear market territory.

Disney is down 10.2% year to date, but the stock will not qualify as one of the "Dogs of the Dow" for 2017. Disney has a dividend yield of just 1.65%; by my definition, to be a member of the Dog pound the dividend yield must be at least 3%.

Disney is expected to report third-quarter earnings of $1.15 a share after the closing bell on Thursday. For this media giant, it's all about monetizing brand-named content. A drag since August 2015 has been the loss of subscribers at sports network ESPN. It seems logical that the company can win back shareholders by increasing the dividend.

Here's the daily chart for Disney.

Courtesy of MetaStock Xenith

Disney closed Tuesday at $94.38, down 10.2% year to date, and in bear market territory 22.7% below its all-time intraday high of $122.08 set on Aug. 4, 2015. The stock is 9.4% above its Feb. 10 low of $86.25.

The stock is below a "death cross" since Jan. 20, which occurs when the 50-day simple moving average declines below the 200-day simple moving average, and indicates that falling prices lie ahead. Also, it means traders should sell into strength to the 200-day simple moving average, which was tested at $104.90 on April 26.

The daily chart shows the Fibonacci retracement levels of the decline from the Aug. 4, 2015 high to the February 10 low.

The stock traded as high as $106.75 when the company reported earnings on May 10. The stock gapped lower on May 11 below the 50% retracement of $104.14. The stock continued lower and the 38.2% retracement became a magnet at $99.92 between May 16 and July 19. In-between was a test of the 23.6% retracement of $94.69.

After an initial short-lived positive reaction to earnings released on Aug. 9, the stock declined from a reaction high of $99.27 on Aug. 10 and has been trading back and forth around the 23.6% retracement of $94.69 since Aug. 26. The stock closed Tuesday just blow this retracement with an in-between low of $90.32 set on Oct. 13.

Here's the weekly chart for Disney.

Courtesy of MetaStock Xenith

The weekly chart shows a red line through the price bars, which is the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average considered the "reversion to the mean."

The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold. A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00.

The weekly chart for Disney will end the week positive if the stock closes on Friday above its key weekly moving average of $93.47. Otherwise, the downside risk is to its 200-week simple moving average of $88.08. The weekly momentum reading is projected to rise to 31.20 this week up from 24.33 on Nov. 4.

Investors looking to buy Disney could have done so on weakness to $92.27, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $97.43, which is a key level on technical chart until the end of November.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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