The well-known American diversified multinational mass media and entertainment conglomerate headquartered in Burbank, California, Walt Disney Co (NYSE: DIS) seem to be ready for a price correction according to its latest charts.
Bearish Indications
#1 Rising Wedge Pattern: The daily chart shows that the stock has been forming a rising wedge pattern during the past few months. This is a bearish pattern and is marked in purple color in the daily chart. The stock has currently broken down from this rising wedge pattern. This indicates that it has the potential to move lower in the near-term.
Daily Chart – DIS
#2 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
[hana-code-insert name=’adsense-article’ /]#3 Bearish Divergence between RSI and Price: The daily chart shows that there is a bearish divergence between RSI and price.This is marked as pink dotted lines.
While the price was making higher highs, RSI was forming lower highs. This indicates bearishness.
#4 Bearish Stochastic: The stochastic in the daily chart is currently moving down from overbought levels.
The %K line is also below the %D line. All these indicate possible bearishness.
#5 Uptrend Broken: The stock has currently broken down from the uptrend line, indicating bearishness.
#6 Overbought CCI moving down: CCI is currently moving down in the weekly chart after reaching overbought levels, indicating bearishness.
Weekly Chart – DIS
#7 %K below %D: In the weekly chart, the %K line of the stochastic is currently below the %D line, indicating bearishness.
#8 Bearish Divergence between Stoch and Price: There is a bearish divergence between Stochastic and price in the weekly chart. This is marked as pink dotted lines. While the price was making higher highs, stoch was forming lower highs, indicating that the price may move lower soon.
#9 Price below Double Bottom Breakout Level: The current price is below the breakout level of the double bottom pattern, indicating that the pattern may have become invalid. This is also a bearish sign.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for DIS is below the long-term support level of $110.50. For those with a higher risk appetite, you can sell half the intended quantity of the shares at the current price of $111.61.
TP: Our target prices are $100 and $90.
SL: To limit risk, place a stop loss at $114.20. Note that this stop loss is on a closing basis.
Our target potential downside is 10% to 18% in the next 3-6 months.
- Entry at $111.61: For a risk of $2.53, our target rewards are $11.67 and $21.67. This is a nearly 1:5 and 1:9 risk-reward trade.
- Entry at $110.50: For a risk of $3.70, our target rewards are $10.50 and $20.50. This is a nearly 1:3 and 1:6 risk-reward trade.
In other words, this trade offers nearly 3x to 9x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the rising wedge pattern with high volume. The breakout of the stock could also be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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