Chart of the week: This one will raise an eyebrow instantly
After decades of success, this stock is adapting to new technology, but can it continue to thrive?
23rd September 2019 10:45
by John Burford from interactive investor
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After decades of success, this stock is adapting to new technology, but can it continue to thrive?
Is this the Last Picture Show for Walt Disney (NYSE:DIS) shares?
Is there anyone on the planet that has not heard of this illustrious name in mass entertainment which has been with us for over 80 years, and is now the largest company in its field, or that has not seen one of its many films?
It has enjoyed major success over the years with almost all it touches including its famous theme parks. But now that the whole entertainment industry is in a streaming revolution where 'consumers' now desire on-demand a sensory overloaded menu of box sets, can it still compete with the likes of Netflix (NASDAQ:NFLX) (and many other upstarts)?
We shall see, but my examination of the price charts tells me that Disney’s best days are very likely behind it. As ever, I start with the long-term weekly:
Source: interactive investor Past performance is not a guide to future performance
From the lowly depths of the $20 region pre-Credit Crunch, the ensuing rally has occurred in a very clear five (purple) waves with purple wave 3 containing its own very pretty ‘red’ five-up. The big question is this: Has purple wave 5 topped? Remember, fifth waves are ending waves. For clues, here is the daily chart of the purple wave 5:
Source: interactive investor Past performance is not a guide to future performance
And what a picture! Any technician worth his/her salt would have an eyebrow or two instantly raised. First off, I have a potentially complete five red waves in purple wave 5 to the $147 high made in late July. This appears to be a textbook example of an 'ideal' fifth wave pattern. Second, the topping pattern looks very likely a Head & Shoulders reversal that would be validated by a sharp move below the neckline.
With the general market, as measured by the S&P 500 index, showing similar signs of reversing, odds must be high that the neckline can be penetrated soon, and a move down to my first target at the $115 - $120 region is on the cards. After that, my main first target is the $100 region and will come into play.
Only a push above the wave 2 high at $140 would amend my stance.
For comparison, here is the weekly chart of a competitor – Netflix.
Source: interactive investor Past performance is not a guide to future performance
Again, I have a potentially complete five impulsive waves up and, this time, the final fifth wave is an exponential surge to the all-time high at $423.
The market is now in a strong move lower in a wave 3 or C wave. Either way, odds are high the wave 1 or A low at $235 can be tested.
So, is Netflix showing the way for the whole entertainment sector?
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John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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