Shares of Disney (NYSE:) rocketed Tuesday, gaining 1.57%. The boost also helped Disney, which is one of 30 publicly traded stocks, also end the day higher, the only major US benchmark to close positive yesterday.
Traders and investors piled on the entertainment giant's shares after the Burbank, California-based company announced it would reopen its Disney World water park after a nearly two-year pandemic-induced hiatus. Clearly, the markets were excited about the potentially increased Disney.
Yet the current increased demand is based on the park's ability to stay open, something that's not necessarily a foregone conclusion as a new wave of COVID-19 spreads around the world.
As such, DIS bulls could face a bearish pushback, now visible through the technical data.
Disney's stock closed Tuesday at its December 10 high, increasing the likelihood of resistance. After the price fell 20% in just three weeks, the current moderate gains could prove to be a rising bearish flag.
It is possible that after four consecutive weekly declines, bears could cover shorts by taking a 20% gain. The drop in supply and additional demand to buy back the borrowed shares that may have been sold by bears to return to brokers drove the price of the shares up. However, since this question is not driven by downright bullish sentiment, the move is higher and somewhat incremental.
It is clear on the daily chart how volume peaked during the previous decline, but dried up as the rise progressed, showing that the strength is in the decline, not the progress.
The location of profit taking is textbook as it follows the implicit objective of the H&S top. The downward breakout fell due to the upward trend of the price, at the bottom of March 2020.
At that time, the share of a bear market slumped, after falling almost 26% from the close of March 8 that year. Now the stock is biased downward, with the following trendline from the 2009 bottom currently at $90. flag to complete with a downward breakout, with a penetration below the Dec. 20 low of $145.08, followed by a return move that retests the underbelly of the flag's resistance.
Moderate traders would wait for a downside breakout to close below $146 and wait for the corrective rally to follow for better entries if not confirmation.
Aggressive traders could risk a short position if the stock closes below the December 10 high of $154.66 (horizontal red resistance line). However, only traders who follow a strict trading plan are allowed to enter into a trade, especially one that they hope will beat the rest of the market. Here's an example:
Trade sample
Admission: $154
Stop Loss: $157
Risk: $3
Goal: $124
Reward: $30
Risk Reward Ratio: 1:10
Author's Note: Technical analysis is not divination. It is a survey based on statistics by measuring the trend and trajectory. We don't expect to be right about every individual transaction, including this one. Rather, we are looking for a positive total return. The generic example simply shows the basic requirements of a coherent plan. You need to customize one that suits your budget, timing and temperament. Until you know how to do this, you can use our samples for educational purposes, but not for profit – otherwise you won't get either. Guaranteed. And there is no refund.
