For well over two years now, shares in Walt Disney Co. (DIS) have been stuck in the doldrums…

Having peaked in March 2021, DIS shares fell for the remainder of 2021 and all the way through 2022 before finding a short-term base in December last year.

All up, that represented a near 60% fall from top to bottom…

As you can see in the chart below, even a promising rally at the start of this year reversed sharply, with most of those gains gone by early March.

Now, with DIS trying to build a base after delivering underwhelming second-quarter earnings, today I want to see what’s in store from here…

Sellers Are Again Exhausted

The left-hand side of the chart below shows the tail end of DIS’s downtrend that started way back in March 2021.

The last major down leg from “A” coincided with the Relative Strength Index (RSI) making a clear inverse “V” (left red circle) and reversing lower from overbought territory (upper gray dashed line).

The 10-day moving average (MA, red line) also bearishly crossed below the 50-day MA (blue line), where it remained until DIS’s rally commenced in January this year…

Walt Disney Co. (DIS)

Source: e-Signal

DIS’s then near 40% rally started after it had successfully held short-term support (left orange line) into the end of 2022.

That rally then accelerated as the RSI tracked all the way from oversold (lower gray dashed line) to overbought territory…

The 10-day MA bullishly crossing above the 50-day MA at almost right angles shows the early strength of that rally.

However, after reversing at “B” – where the RSI formed a double inverse “V” and retraced lower – DIS has been struggling to find direction…

Another rally in March also petered out, with the RSI unable to gain a firm footing in the upper half of its range (above green line).

Instead, from April through early May, the RSI criss-crossed the support/resistance line multiple times, reflecting a lack of conviction from both buyers and sellers.

Then after reporting mixed earnings on May 10, DIS gapped lower, with the RSI firmly falling into its lower band…

With sellers again exhausted, though, the RSI rallied from oversold territory in early June. And as you can see, it has steadily climbed since then (right red line).

This upturn in momentum has enabled DIS to form a fresh short-term base (right orange line).

So far, though, despite testing it several times, the RSI has been unable to break up through resistance. And this has put a cap on its attempted rally.

So what am I looking for from here?

Pushing Right Up Against Resistance

As the chart shows, the RSI is now trading right up against resistance…

If it can break higher from here and gain traction in its upper band, then that could see DIS’s emerging up move bounce higher.

We’d next look for the 10-day MA to break above the 50-day MA as confirmation of any longer-term up move. Note, though, that even a small bounce could still set DIS up for a quick long trade.

However, as I say, we need to keep a close watch on the RSI…

If instead the RSI rebounds lower off resistance, then any up move from DIS will be short-lived.

From there, the longer the RSI were to remain in this lower band, the tougher it would become for DIS to hold short-term support.

And a break lower from there would then become more likely…

Regards,

Larry Benedict
Editor, Trading With Larry Benedict