We’re Going to Disney Land!

Feb 7, 2008: 8:49 PM CST

Ok, not literally, but investors in Walt Disney Inc (DIS) have enjoyed the recent rally in 2007. While the stock remains in a confirmed daily downtrend, the famous stock may be showing early signs of new life.

First, let’s look at this chart from an educational standpoint:

Notice the almost rhythmic wave-like structure in the price action. You can almost feel the ebb and flow of buyers and sellers as they fight for dominance. Disney is showing classic evidence for ‘swing traders’ and the ‘swing nature’ of price.

Notice the buy-side divergence in mid-November, as momentum was increasing while price was declining. That hinted that a counter wave was likely to take place soon.

Price – on the counterswing – failed to breach the falling 200 period moving average, and then a sell swing which took price on a major down swing that carved out a new momentum low shortly after 2008 began.

Notice the trade and structural set-up that occurred at the end of 2007. I call this the “Bollinger Band Squeeze” play, in which the volatility bands narrow decisively after a period of lengthy price-bar overlap has occurred and volatility has contracted. I circled this condition in purple.

Traders could have entered on a breakout by getting short, or by liquidating any long because of the strength of the sell-signal.

Price fell until the end of January, where the two back-to-back large volatility days occurred which have served as the bottom (for the moment).

The most recent price-pulse (impulse) swing has taken price beyond the key moving averages and now sits above the key 50 period moving average. Notice carefully how this level has recently served as support and resistance.

There’s two things to think about. First, “has price reversed?” We’ll see if price can make a higher high (unlikely) or a higher low (more likely).

If you think price is headed higher, don’t forget key resistance ahead from the weekly charts:

Does the picture look different now?

Odds now favor a sharp reversal due to key resistance from the weekly moving averages.

A lengthy momentum divergence is unfolding (or has already done so) and price has ejected downward from a clear head and shoulders top pattern.

Disney Inc (DIS) is an interesting study in how higher time frames can aid analysis, and how you can’t get overexcited by a signal on a lower time frame without scoping out the higher time frame shortly thereafter.

So are you still going to Disney Land? Be my guest!

3 Comments

3 Responses to “We’re Going to Disney Land!”

  1. Disney » Blog Archive » We’re Going to Disney Land! Says:

    […] Corey Rosenbloom wrote an interesting post today on We’re Going to Disney Land!Here’s a quick excerptOk, not literally, but investors in Walt Disney Inc (DIS) have enjoyed the recent rally in 2007. While the stock remains in a confirmed daily downtrend, the famous stock may be showing early signs of new life. … […]

  2. The Fluid Trader Says:

    Hey Corey,

    I don’t know what it is but its difficult to see the Head and Shoulders pattern at times. To me, it looks like a triple top at times or I just don’t see it.

    The chart does look like it has a likely chance of reversal according to the Weekly chart on Disney. There are enough confirmations to validate it but we can never truly predict anything as I’m beginning to learn! It will be very interesting to see what will happen!

    Thanks for the great example!

  3. Corey Rosenbloom Says:

    No problem! The left and right shoulder terminate at approximately $25, while the head terminates at $26. It’s not a huge difference, you’re right, but it’s very difficult to find a picture perfect head and shoulders pattern. Some slant at an angle too. Either way, it spells resistance, in that the buyers were unwilling to step it up at the $25 to $26 level which becomes bearish the more times it is tested.

    Thanks for the comment 🙂