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Disney (DIS) – DIS Reopening Play – September 13th, 2021
Bullish – DIS – $184.12
What is the Market Outlook?
The tone in equities shifted last week as both SPY and QQQ declined more than 0.7% on Friday. While the overall outlook remains bullish, pullbacks from overbought levels in both the SPY and QQQ provide good buying opportunities. Sector rotation indicates that the Defensive sectors (Utilities and Staples) are experiencing an uptick in momentum after underperformance in recent weeks. The narrow leadership in Technology and Healthcare is showing signs of deflating as momentum in these sectors has slowed down. Small caps continue their rangebound movement with IWM struggling to break above $230 and heads lower to support at the $210 area.
Ready for the DIS Bullish Trade Idea?
Our bullish trade is The Walt Disney Company (DIS). DIS has recently traded rangebound and has formed a base at current levels where price is showing signs of breaking above the $187 resistance level. Relative to the Consumer Discretionary sector (XLY), DIS has formed a bottom and is expected to capitulate higher. From a fundamental perspective, DIS is well diversified in its operations and has exposure in streaming, theme parks and media which provides a good opportunity for a reopening play.
As this is a long call diagonal spread, look to take profits at 75%-100% gain and cut losses at 50%:
Take Profit: $16.00 – $18.30 Credit
Stop Loss: $4.58 Credit
Look to close the trade at 21 days to expiration (of the long leg) if neither the take profit nor stop loss level has been reached. View DIS Trade
The Relative Rotation Graph (RRG) for sector rotation indicates that a narrowing sector leadership with only 4 sectors in the Improving and Leading categories and 7 sectors in the Lagging and Weakening categories.
Leading (positive relative trend and positive relative momentum): Healthcare and Technology have been providing leadership for a number of weeks but are now showing signs of slowing relative momentum.
Weakening (positive relative strength and negative relative momentum): 2 sectors have moved to this category – Real Estate and Communications. Real Estate rotated out of the Leading category last week as relative strength and momentum slows. Communications is experiencing a pullback and investors should anticipate an increase in momentum once this pullback is completed and continuation of rally.
Lagging (negative relative trend and negative relative momentum): 5 sectors are in the lagging category – Industrials, Staples, Materials, Financials, Energy. Cyclical sectors took a backseat last week but Materials, Industrials and Financials are starting to see improving momentum.
Improving (negative relative trend and positive relative momentum): Utilities and Discretionary are the 2 sectors in this category. Utilities is showing an increase in momentum and relative strength while Discretionary’s weakening momentum may see the sector revert to the Lagging category this week.
Healthcare provided extended leadership in recent weeks and declined last week. A break below the $134 previous support level is concerning and does provide some evidence of a further decline this week. The next support level is at $129.
Despite being in the Lagging category, XLI remains rangebound as is approaching the bottom level of the range. Bullish price action here would provide a good long opportunity. However, a break below $99 would invalidate this thesis.
WMT – After double top at all-time highs, look for selling opportunities below the $145 minor support level.
SAP – SAP is currently trading around the 200 Day MA but losing momentum. Look for selling opportunities below $145
ROKU – A break below $330 support indicates that ROKU could decline further to the next support level at $291.
We hope you enjoyed this Options Action Recap!