Is the Pullback Over for Disney Stock?

After announcing second-quarter earnings on Aug. 4, shares of The Walt Disney Co. (NYSE: DIS) fell 9.17% as investors paid more attention the company’s lowered outlook on cable television than they did the 11% growth in the company’s earnings. The earnings beat analysts’ estimates and the revenue number was slightly below estimates. Despite the strong numbers, investors decided to sell.
The good news is that the selling may be providing a great buying opportunity. If we look at the daily chart for Disney stock, we see that it is oversold based on both the slow stochastic readings as well as the 10-day RSI. In fact, the 10-day RSI hit its lowest level in the last three years.

As you know, being oversold alone isn’t a reason to be bullish on a stock. However, when we look at the weekly chart, we can see a clearly defined trend channel that has guided the stock higher over the last three years, and the pullback created after the earnings announcement has brought the stock down to the lower rail of that channel.

Looking at the weekly oscillators, we see that the slow stochastic readings are approaching oversold levels, while the 10-week RSI is sitting right above the 40 level. While this isn’t oversold by most standards, the pattern for Disney is that when the 10-week RSI approaches the 40 level the stock rallies.
In the last 3 ½ years the RSI has been down to this area three previous times, and each time the stock went on to rally for the next six months. In fact, each time the RSI got near 40, the stock was up between 30%-45% six months later.
Disney is one of those companies that is a household name. While it is considered a consumer discretionary stock, it borders on a consumer staples stock. The avid fans buy the company’s videos and other merchandise almost as a necessity. Just think back to last Halloween and how many little girls you saw dressed as Elsa from “Frozen.” I know in my neighborhood there were at least 20.
Given that Disney has such a loyal fan base, it is surprising to see the stock with some bearish sentiment toward it. The short interest ratio is sitting at 7.50 right now, and the short interest has been increasing in recent months. The analyst ratings show 22 “buy” ratings and 10 “hold” ratings. There aren’t any “sell” ratings at this time.
Given the oversold condition on the daily chart, the way the stock is hitting the lower rail of the channel on the weekly chart, and the high short interest ratio, I look for Disney stock to rally over the next six months.
Given the pattern in the weekly RSI for Disney, I would look for the stock to gain at least 30% in the next six months. From the current price level, a 30% gain would put the stock in the $140 range. I would also set a stop-loss using the 52-week moving average. Disney stock hasn’t closed a week below the moving average since the last week of 2011.

This is making ordinary people rich

Ordinary people across America are getting insanely rich. Take Gladys Holm. She never earned more than $15,000 a year as a secretary. But by making one simple move, she was able to leave an $18 million fortune to a children’s hospital when she died. There’s many more just like her. Find out how they did it right here.