Is It Time to Sell Disney Stock?

Dow component The Walt Disney Company (DIS) is trading just five points under the 2018 high after gaining more than 7% in the past two weeks. The rally recouped a vertical slide that followed the very profitable "Captain Marvel" release, generated by fears about the entertainment giant's growth trajectory for the rest of 2019. The recovery wave highlighted continued investor demand despite mediocre annual returns in recent years. 

Even so, it may be time to sell shares of the entertainment giant because weakening technicals under the surface lower the odds that it will hold those gains or break out above major resistance in the $120s, now in place for three and a half years. As it turns out, the six-day March decline did the most damage to volume readings since a 2015 sell-off relinquished 18% in a few weeks, warning that institutions may be pulling up stakes and heading back to the sidelines.

Skeptical market players should watch the $115 level closely in the coming sessions, looking for signs of a reversal and renewed selling pressure because the next downturn may be significant. The company won't report earnings until May 8, but the next "Avengers" release on April 26 could trigger a repeat of November's sell-the-news behavior, perhaps presaging a breakdown that generates the first downtrend since 2016.

The stock found support at a split-adjusted $12.56 in 1994 and turned sharply higher, entering a trend advance that gained ground into the 1998 peak at $42.75. It got cut in half in the next five months and bounced back to resistance, failing a May 2000 breakout attempt that posted the second high in a double top pattern. It broke down in the second half of 2001, dumping the stock to an eight-year low in August 2012.

Disney shares performed well during the mid-decade bull market, lifting in multiple rally waves that failed just above the .618 Fibonacci sell-off retracement level in May 2007. A modest pullback gathered downside momentum during the 2008 economic collapse, finding support within two points of the 2002 low in March 2009. The subsequent bounce carved a V-shaped recovery pattern, completing a 100% retracement into the 2007 high in 2010.

The stock broke out to new highs in 2012, entering a powerful uptrend that that posted impressive gains into August 2015's all-time high at $122.08, ahead of a major decline triggered by weak results at the ESPN division. The stock posted a 16-month low at $86.25 in February 2016, rounding out a trading range that remains in force more than three years later. Price action during this period has carved a symmetrical triangle pattern that has held a trendline of four rising lows.

The monthly stochastics oscillator crossed into a sell cycle in January 2019, predicting at least six to nine months of relative weakness, but it turned higher at the panel's midpoint in March. This mid-range upturn often precedes a failed buy signal, adding to technical concerns as we head into first quarter earnings season. The weekly oscillator has done the same thing, raising the odds that the current uptick will get repealed in the coming weeks.

The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in 2015 and entered an aggressive distribution phase, losing ground into the fourth quarter of 2016. The subsequent accumulation wave stalled within striking distance of the multi-year high in October 2018, yielding sideways action into a vertical March plunge to a nine-month low, triggered by exceptionally heavy selling pressure.

The April bounce has recouped nearly 100% of the slide, but OBV has failed to follow suit, setting off a bearish divergence pointing to the departure of institutional capital. This early warning may indicate that smart money is finally giving up and reallocating capital into better performing instruments. At a minimum, it admonishes current shareholders to tighten up stops because the multi-year trading range could end soon in a dramatic breakdown.

Disney stock has lost key sponsorship in the past month, raising the odds for a sell-off back to range support and a potential breakdown.

Disclosure: The author held Disney shares in a family account at the time of publication.