Some stocks give us plenty of opportunities to play big moves in both directions. For instance, I last wrote about Walt Disney (NYSE: DIS) in March, as the stock was in the midst of a three-month rally.
Shares peaked in May and then spent the next five months falling, eventually bottoming in October below the buy price I originally highlighted.
While we are more than one month past that bottom and Disney, along with many consumer discretionary stocks, enjoyed a strong post-election rally, I still think it has plenty of room to run.
Disney is generating buzz with a strong showing for its latest animated movie “Moana” and big interest in its upcoming blockbuster “Rogue One,” which is part of the “Star Wars” franchise.
According to reports, “Rouge One” saw the second-highest first day of ticket pre-sales in U.S. box office history.
More importantly, looking at the chart, there’s a lot to like.
First, the stock moved through its declining trendline drawn from one year ago. And when shares really started to take off after the election, they took out major moving averages, while bearish trends in relative performance and on-balance volume turned bullish.
In other words, we saw upside trend breaks in price, performance and money flows. Not too shabby.
Further, the aggregate group of traders on social media platform Stocktwits.com are 96% bullish on the stock. Normally, sentiment readings are thought to be contrarian indicators, with extremely positive sentiment considered bearish, but not this one. I have seen this group get it right more often than not, possibly because it is mostly made up of small, professional traders with skin in the game.
Back on the charts, DIS seems to be winning in its fight against resistance as it makes its next breakout move, suggesting it’s time to either add to positions if you have them or open new longs at current levels. The resistance level was set by the earlier high in November and the temporary high set in August, which was significant because it was also the last time the stock touched its trendline until the October breakout.
The next question is, how far can Disney soar? While I do not expect an immediate return to its twin 2015 highs of roughly $120 and $122, I do see the stock reaching a more modest target in the $107 area in the near term.
If and when it gets there, we can reevaluate to see if it can make a run at old highs. I would not be surprised if it did, because we can make the argument that the entire 2015-2016 chart pattern is a triangle, and that the vertical height projected up from the breakout point gives us an upside measured target at fresh all-time highs.
But we’ll cross that bridge when we come to it. For now, we’ll go with a relatively modest goal of $107, which is 7% above the market price, and see what happens.
The stop is 1 point below the post-election pullback low of $97, which would also negate the breakout above the one-year trendline.
Recommended Trade Setup:
– Buy DIS at the market price
– Set stop-loss at $96
– Set initial price target at $107 for a potential 7% gain in four weeks
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Source: Profitable Trading