Disney (August 7, 2015)

I’m back with another long term chart. This time, it’s a chart of Disney’s stock. On Tuesday, Disney reported earnings, and the stock fell sharply from an all-time high of $122.08 to a low of $104.24 on Thursday. CNBC has been abuzz with discussion about the stock’s fallout.

I think that Disney’s stock has further to go on the downside. I’ll give you an Elliott Wave perspective first, and then I’ll discuss the fundamentals and investor sentiment situation with Disney.

Disney long term elliott wave summer 2015

From a low in 2002, Disney had a Cycle degree wave up that lasted until 2007, and then a Cycle degree wave down into 2009. We are currently in a Cycle Wave 3 which, as usual, has been a huge wave. It has subdivided into three Primary waves, and I think the third wave topped out earlier this month. The high of 122 was nearly 1.618 times the percentage gain of the first wave, which is about the biggest kind of Wave 3 that you can get. I am looking for a Wave 4 decline that matches the Wave 2 decline on a percentage basis. That gives a bottom target around $75.

Not all individual stocks lend themselves to a traditional Elliott Wave analysis; some are too volatile to apply Elliott Wave guidelines beyond the basic principles common to technical analysis in general. However, Disney’s history is consistent with Elliott Wave theory thus far.

From an investor sentiment perspective, I think that the post-Frozen enthusiasm surrounding Disney and its stock constitutes a bullish crowd. Although I do not think that overall demand for Disney’s products is going to decline anytime soon, investors’ expectations for the company went too high, making the stock vulnerable to negative surprises such as the loss of cable subscribers described in the earnings report. I also have a feeling that the upcoming Star Wars movie in December is going to disappoint where sales are concerned, and that could set off the final leg of the stock’s correction.

Disney’s stock is currently trading at a forward P/E ratio of 19.21. That number would not be enough to make me bearish in and of itself; however, considering how far the stock has risen since 2011, the P/E ratio is high enough to suggest there is more downside to go.

Sources:
P/E data: Yahoo Finance
 

 

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3 thoughts on “Disney (August 7, 2015)

  1. Thanks Carl, that’s really useful, I wish I had seen this post earlier. I hope there will be a relief rally at around $105 by next week so I can exit. I will look to reposition when your $75 target is approached. BTW, I share your feelings about the Star Wars movie, expectations are probably set too high.

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