Shorting Disney? These Charts Explain Why It Might Make Sense
Eagle Bay Capital founder and Market Technician JC Parets tracks the performance of the Dow 30, looking into the companies every week. In the firm’s most recent Dow 30 report, he analyzes two charts for Walt Disney Co (NYSE: DIS).
Structurally, Disney’s stock price could remain above the uptrend line from the lows hit in November of 2012. Momentum reached the overbought conditions the firm wanted to see, nullifying the potential bearish divergence they had been pointing out.
Parets has been seeing the action with kind eyes as the 200-week moving average continued to rise and prices surpassed last summer’s highs. The stock broke out in February, following the additional consolidation above the resistance from the Summer (shaded gray area in the chart) that the analysts wanted to see.
Eagle Bay has “wanted to be taking profits at the upper of these two rising trendlines from 2012 and that has been hit the past few months.” Parets said he would still approach this market from a tactical perspective after the firm’s upside targets have been reached.
Related Link: Why This Hedge Fund Manager Is Short Walt Disney
Short-term prices hovered above last summer's highs, as Eagle Bay had hoped for: “This was the line in the sand for this name on multiple timeframes.”
Momentum continued to be in a bullish range as the Relative Strength Index (RSI) confirmed the new highs in recent months. Eagle Bay assured they wanted to be buyers somewhere around $91 and anything below last summer's highs. The firm currently does not want “anything to do with this name.”
Over the past few weeks, the stock hit the target above $111, representing the 261.8 percent Fibonacci extension of the September-October correction.
“At this point, based on targets being hit on multiple timeframes and bearish momentum divergences, I would be aggressively short, but only if prices are below 112,” Parets said. “Above 112 and no reason to be short. I would be covering shorts under 100 which was the gap up low in early February.”
Parets believes Walt Disney is a good short.
“We had upside targets in DIS near 111 on both weekly and daily timeframes that were hit over the past week or so. After a failed breakout this week I think aggressive shorts up here have a risk/reward very much skewed in favor of the bears. I would be covering shorts 10% lower than current levels,” he concludes.
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