Walt Disney Co was trading about 1% lower on Thursday after falling in sympathy with Netflix, Inc on Wednesday, which plunged almost 40% after printing its first-quarter earnings.
Disney’s decline on Wednesday began to pick up at 11:30 a.m. in reaction to a bear flag the stock had settled into on the four-hour chart.
The bear flag pattern is created with a steep drop lower forming the pole, which is then followed by a consolidation pattern that brings the stock higher between a channel with parallel lines or into a tightening triangle pattern.
For bullish traders, the “trend is your friend” (until it’s not) and the stock may continue to rise upwards within the following channel for a short period of time. Aggressive traders may decide to purchase the stock at the lower trendline and exit the trade at the higher trendline.
Bearish traders will want to watch for a breakdown from the lower descending trendline of the flag formation, on high volume, for an entry. When a stock breaks down from a bear flag pattern, the measured move lower is equal to the length of the pole and should be added to the highest price within the flag.
The Disney Chart
The measured move of the break of the bear flag is about 7%, which indicates the stock could fall toward the $117 level. The break from the flag came on higher-than-average volume, which indicates the pattern was recognized.Disney has been trading in a fairly consistent downtrend since March 29, when the stock topped out at the $144.46 mark. The most recent lower high was printed on Tuesday at the $133.19 level and the most recent confirmed lower low was formed at $126.85 on April 18. Eventually, Disney will print another lower low and then bounce up to print a lower high, which could give bearish traders who are not already in a position a solid entry.
The stock is likely to bounce soon because Disney’s relative strength index (RSI) has reached the 30% level. When a stock’s RSI reaches or falls below that level, it becomes oversold, which can be a buy signal for technical traders.
Disney has resistance above at $126.53 and $129.42 and support below at $120.61 and $115.76.
