Disney Stock Provides Meat For The Bears: Here's Where To Watch For The Bounce

Walt Disney Co DIS was trading about 1% lower on Thursday after falling in sympathy with Netflix, Inc NFLX on Wednesday, which plunged almost 40% after printing its first-quarter earnings.

Disney’s decline on Wednesday began to pick up at 11:30 a.m. in reaction to a bear flag the stock had settled into on the four-hour chart.

The bear flag pattern is created with a steep drop lower forming the pole, which is then followed by a consolidation pattern that brings the stock higher between a channel with parallel lines or into a tightening triangle pattern.

• For bullish traders, the "trend is your friend" (until it's not) and the stock may continue to rise upwards within the following channel for a short period of time. Aggressive traders may decide to purchase the stock at the lower trendline and exit the trade at the higher trendline.
• Bearish traders will want to watch for a break down from the lower descending trendline of the flag formation, on high volume, for an entry. When a stock breaks down from a bear flag pattern, the measured move lower is equal to the length of the pole and should be added to the highest price within the flag.
• A bear flag is negated when a stock closes a trading day above the upper trendline of the flag pattern or if the flag rises more than 50% up the length of the pole.

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.

The Disney Chart: The measured move of the break of the bear flag is about 7%, which indicates the stock could fall toward the $117 level. The break from the flag came on higher-than-average volume, which indicates the pattern was recognized.

• Disney has been trading in a fairly consistent downtrend since March 29, when the stock topped out at the $144.46 mark. The most recent lower high was printed on Tuesday at the $133.19 level and the most recent confirmed lower low was formed at $126.85 on April 18. Eventually, Disney will print another lower low and then bounce up to print a lower high, which could give bearish traders who are not already in a position a solid entry.
• The stock is likely to bounce soon because Disney’s relative strength index (RSI) has reached the 30% level. When a stock’s RSI reaches or falls below that level, it becomes oversold, which can be a buy signal for technical traders.

Disney has resistance above at $126.53 and $129.42 and support below at $120.61 and $115.76.

See Also: Florida Senate OKs Dismantling Of Disney's Special District Status