Depending on the amount of time a position is kept open, traders can be separated into three categories: scalpers, day traders and position traders. The third group is known for holding a position for weeks, months or more if required. That group was recently rewarded by the sharp surge in Walt Disney stock.
A little over a year ago, in March 2018, the daily chart of DIS revealed a well-known Elliott Wave formation known as a triangle. Disney stock was in an uptrend prior to it and since triangles are continuation patterns, we thought a new all-time high is on the cards once the pattern was completed.
Triangles consist of five sub-waves moving sideways. Waves (a) and (b) were simple a-b-c zigzags, while waves (c), (d) and (e) were w-x-y double zigzags. Back in March 2018, when this chart was published, we though that as long as the stock traded above $96.20, a bullish reversal for the start of wave V up can be expected.
$96.20 wasn’t a randomly picked level – in a triangle wave (e) cannot cross the end of wave (c). In the same time, the anticipated wave V was supposed to exceed the previous all-time high of $122.08 reached by wave III in 2015. With the stock hovering around $100, the risk/reward ratio was very favorable for the bulls.
Disney Stock – How the News Fits the Pattern
Earlier this month Disney announced that it is ready to offer its own streaming service to compete with the likes of Netflix and Amazon. Following the news, the stock shot up to $132.69 to reward the bulls’ patience.
When the entire stock market was crashing in December 2018 the price of Disney stock fell to $100.46. However, $96.20 survived and all traders had to do was stick to the plan and wait. A reasonable entry level near $100 a year ago, translates into an annual return of ~30% today, not counting dividends.
So far so good, but what can we expect from Disney going forward? According to the Elliott Wave theory, triangles precede the last wave of the larger sequence. This doesn’t mean we should expect a crash right away. In fact, Disney seems well on its way to $150 a share. It only means the stock carries a lot more risk than potential reward near $130. The time to be greedy is over. The time to be careful has arrived.
Did you like this analysis? Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!