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Chart Advisor: How Low Will Disney Go?

Posted August 28, 2023 at 2:44 am
Investopedia

By J.C. Parets & All Star Charts

1/ House of Mouse-Trap

2/ Short-Duration Bonds Creep Lower

3/ DXY Thrusts Higher

4/ Cotton Coils

Investopedia is partnering with All Star Charts on this newsletter, which both sells its research to investors, and may trade or hold positions in securities mentioned herein. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice.

1/ House of Mouse-Trap

It has been a rough couple of years for the House of Mouse. American entertainment and media conglomerate Disney (DIS) is now about 60% off its highs from March 2021. This represents a loss of over $200 billion in market cap for the storied Dow component.  

With more and more negative headlines rolling in by the day, the real question for DIS investors is where do we go from here?

When we look at a zoomed-out chart, it reveals a clear level of interest at current prices as DIS has found support here several times already.

These multi-year lows do not just represent the breakdown level of a massive distribution pattern. They also happen to coincide with the 62% retracement of the advance off the financial crisis bottom.

Whenever this much of a prior advance is given back, odds favor a full retracement. In other words, a decisive breakdown here could mean that the selloff for Disney is just getting started.

2/ Short-Duration Bonds Creep Lower

At the beginning of the year, it appeared time to bring bonds back into the fold as U.S. Treasuries printed fresh six-month highs.

That bullish outlook was short-lived.

Fast forward to today, and the structural downtrend for bonds remains intact. And those false breakouts last spring have led to fresh breakdowns heading into the fall.

Here’s the two-year Treasury note completing a bearish continuation pattern:

The momentum profile alone reveals that sellers hold control over this market, with two oversold readings since May. We’ll likely witness a third on a valid breakdown below the March pivot low.

The 10- and 30-year futures have already undercut their respective March pivot lows.

As long as they trade below those former lows, U.S. Treasuries represent downside risk.

3/ DXY Thrusts Higher

The U.S. Dollar Index (DXY) violated a year-to-date downtrend line yesterday, ripping higher.

In fact, higher has been the trend ever since DXY posted a failed breakdown last month. 

Check out the number of consecutive up-weeks in the lower pane of the U.S. Dollar Index chart:

DXY has finished in the green for six consecutive weeks and counting. 

Notice that readings of similar magnitude have led to further strength during the past decade. These outliers also tend to come in pairs—initial and secondary thrusts.

Perhaps investors will be forced to contend with a strengthening dollar in the coming months and quarters.

4/ Cotton Coils

Commodity contracts continue to catch higher. And cotton futures demand our attention.

We’ve kept a close eye on this commodity since January.   

Check out the weekly continuation chart of cotton futures:

Buyers began challenging a critical retracement level at approximately $89 to open the year. And they continue to do so, slowly absorbing overhead supply as momentum steadily improves.

Prolonged periods of contraction often lead to explosive expansions in price. Cotton is in the midst of the contraction phase.

A decisive upside resolution above former resistance could kick off the next leg higher—a potentially expansive one.

Originally posted 25th August 2023

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