Disney Stock Could Hit $150 After 3-Year Triangle Breakout

Dow component The Walt Disney Company (DIS) broke out of a three-year triangle pattern on Thursday after Comcast Corporation (CMCSA) dropped its bid for Twenty-First Century Fox, Inc. (FOXA) assets, ending a seven-month bidding war. Disney has scheduled a July 27 shareholder meeting to vote on the acquisition, which should be ratified by a wide margin. The deal will add to an already astounding variety of old and new media assets.

The stock topped out in 2015 after the ESPN division reported weaker-than-expected growth, raising fears about millennial cord cutting in the previously bullet-proof sports category. That division is still struggling despite cutbacks, but initiatives that include a 2019 streaming service to compete with Netflix, Inc. (NFLX) have eased shareholder anxiety while contributing to buying pressure that could lift the entertainment icon’s shares above $150. (See also: Comcast Drops Bid for Fox, Ceding to Disney.)

DIS Monthly Chart (1993 – 2018)

The stock split three times between 1986 and 1998 during a historic ascent, driven by renewed popularity of the company’s animation studio. The string of mega-hits ended with 1995’s “Pocahontas,” which was viewed as a commercial disappointment even though it grossed more than $340 million worldwide. The stock topped out in the low $40s three years later, establishing a resistance level that took 14 years to overcome.

Disney shares sold off to a seven-year low at $13.48 in October 2002, ahead of a multi-wave bounce that ended in 2007 at the .786 Fibonacci sell-off retracement level in the mid-$30s. The stock pulled back in a shallow correction and plunged with world markets in 2008, coming to rest within two points of the 2002 low. The subsequent bounce took just 14 months to complete a round trip into the prior high, ahead of a 2011 breakout that failed at 1998 resistance six months later.

A 2012 uptick caught fire, completing a 14-year breakout while initiating a powerful uptrend that posted a series of new highs into August 2015, when the ESPN shortfall hit the airwaves. A volatile decline into 2016 established a trading range that hasn’t been challenged in the past 30 months while the stock has carved a textbook symmetrical triangle pattern. It completed the pattern’s fifth wave in May 2018, which is typically the last swing before a breakout or breakdown.

[Learn more about recognizing chart patterns such as the symmetrical triangle and discover how you can use these patterns to generate profitable trading ideas in the Technical Analysis course on the Investopedia Academy.]

DIS Weekly Chart (2015 – 2018)

The triangle has drawn a descending trendline that has dropped to $110, while the Comcast news triggered a buying wave that hit $114.68 before the stock closed at $112.13. This signals a major breakout, but it’s likely that aggressive sellers will attempt to dump the stock through $110 and trigger a pattern failure. However, that could be a tough chore because the bullish tape has lifted on-balance volume (OBV) to the highest high since 2015.

The developing rally faces four resistance levels: at $112, $116, $120 and $122. A healthy breakout could mount these barriers quickly, but the triangle’s massive size suggests a period of base building and consolidation rather than a quick momentum thrust into the $120s. A temporary failure is also possible, setting up a lower-risk entry near $107. Price action in coming sessions will be instructive, with Thursday’s weak close generating an important test of the stock’s strength. It also has to deal with the Aug. 7 earnings report, when attention shifts back to the broadcasting division and highly anticipated streaming service. (For more, see: Disney’s Breakout May Send Stock to All-Time High.)

The Bottom Line

Disney has broken out of a three-year triangle pattern after Comcast ended its bid to acquire Fox assets. Bears could test the breakout’s strength for several weeks, but the stock is on track for a trend advance that could reach $150 in 2019. (For additional reading, check out: Walt Disney: How Entertainment Became an Empire.)

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

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