Disney’s Hot Rally Is About to Face Its First Big Test

Long-suffering Walt Disney (DIS) stockholders finally caught a break in late 2023.

DIS had lost almost 62% since its March 2021 peak. But the media juggernaut bottomed out in October last year and began to rally.

In just under a month, DIS gained 22%.

But after that short sharp burst, the rally looked in danger of petering out.

Yet we checked in on DIS (red arrow in the chart below). And it had held a key level and was showing promising signs of its rally resuming.

That move played out. So let’s see what’s coming next…

Everything Changed in October

In the chart of DIS below, you can see how its long-term downtrend carried through until October last year.

That down move appeared in the long-term 50-day Moving Average (MA, blue line) as it tracked lower.

Walt Disney (DIS)

Source: eSignal

Throughout this down move, you’ll also notice several other bearish signals.

The shorter-term 10-day MA (red line) crossed beneath the 50-day MA. And both MAs slipped lower.

Plus, the Relative Strength Index (RSI) remained stuck in its lower band (below the green line).

You can also see where the blue MACD line and orange Signal line tracked closely sideways and didn’t break up through the zero line (0.00).

Yet that all changed in October…

The RSI formed a ‘V’ and bounced higher. And DIS was able to rally.

That rally gathered momentum with the RSI breaking up through resistance (green line) and into the upper half of its range.

Adding to the bullish move, the 10-day MA crossed and accelerated above the 50-day MA at a sharp angle.

But as the chart shows, that rally then petered out.

Take another look:

Walt Disney (DIS)

Source: eSignal

That coincided with the RSI hitting resistance at the overbought line (upper grey dashed line). DIS then retraced as the RSI tracked back toward support.

But that wasn’t the end of the story…

When we checked in on DIS on January 23, the RSI had just rallied into its upper band and tested and held support.

We noted at the time that if DIS’s rally was to resume, it was vital for this support level to hold and momentum to build further.

We were also looking for the MACD line to accelerate above the Signal line (with both tracking higher) as further confirmation of Disney’s rally.

As you can see, that is how things played out. DIS gapped higher off its big Q1 earnings beat.

But that move has the RSI well into overbought territory (orange circle), so what can we expect from here?

Slowing Momentum

After that big gap higher, the chart shows that upward momentum is starting to slow down. The RSI peaked and turned lower.

And DIS looks to be building short-term resistance around the $113-114 level (horizontal orange line).

If the stock can’t break above this resistance level as the RSI tracks lower, that could set up DIS for a brief pullback.

We’d then look for the MACD line to cross below the Signal line (with both falling) as further evidence of a retracement.

Larry Benedict
Editor, Trading With Larry Benedict