Could the Walt Disney selloff be over?

Investor’s favourite Disney has suffered from a recent selloff, yet this could provide buyers with an opportunity to pick up shares at a better price.

Traders outside the London Stock Exchange
Source: Bloomberg

Walt Disney has been one of the biggest success stories of the post-2008 period, with the firm representing one of the most consistent performers; gaining over 700% from the 2009 low to 2015 high. However, with the recent downturn in stock markets, has this provided investors with the opportunity that many have been waiting for?

The Walt Disney brand has long been synonymous with timeless and memorable characters, drawing its strength from a huge back catalogue of valuable cartoons to then develop theme parks and a whole array of products. However, the transition of Cinderella’s castle into Elsa’s ice palace at Disneyland Florida highlights that the firm has finally begun to leave its roots behind.

The strategy of buying and developing new subsidiaries has given the firm a new lease of life and this is a large part of its success. The 2010 purchase of Marvel Entertainment and 2012’s LucasFilm buyout were particularly influential factors which have driven new diversified revenue streams.

The recent selloff was initially sparked by a disappointing earnings release, with revenues missing estimates and a cut to its outlook for profits in its cable business. However, this negative sentiment has developed given the wider Chinese fueled selloff, which at its worst had seen 25% wiped off Disney shares. However, there are signs that the buyers could be coming back to the fore.

The weekly chart below shows that the rout stopped perfectly on the $90 mark, which also coincided with the 100-week simple moving average and support zone dating back to late 2014-early-2015. Typically the consistency of Disney means that price rarely strays below the 20-week SMA, with the 50-week SMA providing the ultimate reversal for those deeper retracements. However, this move to $90 shows the continued respect for moving averages and points to a possible recovery from here on in.

The daily chart shows a very bullish morning star reversal in play, with yesterday’s selloff ultimately forming a long legged doji. This is a clear indecision signal and is often found at reversals within the markets.

The hourly timeframe shows that we are now starting to see higher lows, alongside a flat lining neckline at $100.62. Should we see price move above $100.62, I would expect this to spark a strong appreciation with the next major resistance level seen around $104.24.

The threat here is that the moves within Disney shares are not solely derived by perception of the firm itself. Given the wider selloff, we would expect further downside should the underlying markets take another tumble lower. Thus my bullish outlook is also reliant upon a recovery or at least stability in the wider market.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.