Disney Beats Earnings, but Stock Fails at Monthly Risky Level


The Walt Disney Company (DIS) released a solid earnings report after the closing bell on Feb. 4. The stock popped to as high as $147.30, which was a failed test of its monthly risky level at $146.40. The stock is above a "golden cross" on its daily chart and tested its 200-day simple moving average at $139.00 at the end of last week. Its quarterly value level is $137.40. A problem is that its weekly chart is negative.

Disney is a media giant and an important component of the Dow Jones Industrial Average. However, the stock has failed to deliver upside despite Wall Street's praise of its streaming service. In typical fashion, analysts raised their price targets. Goldman Sachs raised its price target to $159 from $148, and Guggenheim raised its target to $160 from $151. My risky level for February was $146.40, with my annual risky level at $170.52.

The stock is not cheap, as its P/E multiple is 25.25 with a dividend yield of just 1.25%, according to Macrotrends. The stock closed last week at $138.97, down 3.7% year to date, but it is in bull market territory at 29.5% above its March 25, 2019, low of $107.32. The stock is 9.4% below its all-time intraday high of $153.41 set on Nov. 26.

The daily chart for Disney

Daily chart showing the share price performance of The Walt Disney Company (DIS)

The daily chart shows the formation of a "golden cross" on April 4, 2019, when the 50-day simple moving average rose above the 200-day simple moving average to signal that higher priced lie ahead. When this buy signal is on the chart, the strategy is to buy weakness to the 200-day simple moving average. On Oct. 31, this average was tested at $128.98. This tracked the stock to its all-time high of $153.41 set on Nov. 26.

The close of $144.36 on Dec. 31 was an important input to my proprietary analytics, and its annual risky level is $170.52. The semiannual value level is $130.29. The quarterly value level is $137.40. The close of $138.31 on Jan. 31 was another input to my analytics, and the risky level for February at $146.40 was tested at the post-earnings high.

The weekly chart for Disney

Weekly chart showing the share price performance of The Walt Disney Company (DIS)

The weekly chart for Disney is negative, with the stock below its five-week modified moving average of $141.20. The stock is above its 200-week simple moving average, or "reversion to the mean," at $113.19, last tested as a buy level during the week of Dec. 28, 2018 when the average was $105.26. The 12 x 3 x 3 weekly slow stochastic reading declined to 36.41 last week, down from 41.03 on Feb. 14.

Trading strategy: Buy Disney stock on weakness to its quarterly value level at $137.40 and add to positions on weakness to its semiannual value level at $130.29. Reduce holdings on strength to the monthly risky level at $146.40.

How to use my value levels and risky levels: The closing price of the stock on Dec. 31, 2019, was an input to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons. Monthly levels for February were established based upon the Jan. 31 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which typically is followed by gains of 10% to 20% over the next three to five months.

Want to learn how to integrate trading levels into your everyday trading strategy? Check out my new publication, 2-Second Trader.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

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