To me this is a very simple trade. Walt Disney has hit all of our upside objectives and now I believe it’s time for it to take a breather. I think we probably fade down back below $100, and it will likely fall even more than that.
First of all, here is a journalist’s headline on the day the stock made an all-time high and then faded throughout the trading session:
It makes me cringe just reading that….
Anyway, more importantly, the charts point to a great risk/reward on the short side. First here is the weekly chart showing prices briefly exceeding the upper of the two parallel trendlines defining this channel since 2012. Simultaneously prices also briefly exceeded the 261.8% Fibonacci extension of the September/October decline last year before failing:
Now here is a closer look at the daily chart. Once again we see prices running into, and failing at, both the upper of the two parallel trendlines as well as the 261.8% Fibonacci extension of the September/October decline. But also look at momentum putting in a bearish divergence at the new highs. Lower highs in momentum while prices put in, and failed, at a higher high is a terrible combination:
This makes the risk/reward very much skewed in favor of the bears. Risk management-wise this one is simple. We only want to be short below these highs. If prices break out to new highs, there is no reason to be short. But I believe this is the lower probability outcome and indeed prices fall hard. I think we easily head down under 100.
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Tags: $DIS $DJIA $DIA