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.
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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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