A year ago, in August 2015, Disney stock was flying above 122 dollars a share. Yesterday’s trading session was closed slightly below 98.00. And while that is still higher than the 86.25 bottom in February 2016, Disney remains one of the beaten-down stocks of the year. Is this going to change? Should you buy the dip? Is Walt Disney Co. stock a worthy long-term investment? These are the questions we are going to answer in this article.
In order to be able to form an opinion, we rely on the Elliott Wave Principle, a forecasting method, discovered by Ralph Nelson Elliott in the 1930s and still trustworthy today. Let’s see what it has to say about Disney’s weekly stock price chart shown below.
The Wave principle postulates that trends move in repetitive patterns. Five-wave patterns, called impulses, indicate the direction of the larger trend, but every impulse is followed by a correction in the opposite direction, before the trend resumes. Keep that in mind and take another look at the chart above. The Great Recession of 2007-2009 brought Disney down to 15.14 dollars a share. This is the bottom our wave count starts from. Where does the decline between 122.08 and 86.25 fit into the wave structure of the post-crisis recovery?
As visible, the advance since 2009 cannot be seen as a complete five-wave impulse, but we believe it is going to become one. Disney’s fifth wave up – V of (III) – is still missing. Should we expect more strength then? We have three reasons to believe so. First, corrections consist of three waves. The weakness to 86.25 is clearly a three-wave sequence, labeled A-B-C. Second, fourth waves usually retrace back to the territory of previous fourth waves. In this case, wave IV goes back to the area of wave (4) of III. And third, wave IV seems to have ended precisely at the 38.2% Fibonacci level, which is where fourth waves often terminate.
If this is the correct count, we should prepare for more strength from now on, since wave V of (III) seems to be in progress. As long as 86.25 holds, targets above 122 dollars are plausible, so we believe staying long is worth the risk. However, once a new top is reached, wave (IV) to the south is likely to bring Disney stock back down to the 90s area. This outlook does not make it a good long term investment. Just a mid-term one, at best.