Is DreamWorks A Dream Or A Nightmare?

05/30/08 09:20:58 AM

by Koos van der Merwe

DreamWorks has all the makings of a company that is a challenge to Disney, but...

Security: DWA
Position: N/A

Shrek is a name synonymous with film production company DreamWorks (DWA), and being the success it was, with Shrek II even a bigger profit maker, we would have expected the stock price to soar. In spite of bringing out a number of excellent movies, the stock price fell along with the Dow Jones Industrial Average (DJIA) and Standard & Poor's 500 from October 2007 to January 2008. From this level it recovered strongly from a low of $21.16 to $31.47, 50% plus recovery. Can the stock price still move higher?

FIGURE 1: DREAMWORKS, DAILY. Here is a dream that is DreamWorks.

Graphic provided by: AdvancedGET.

Figure 1 is a daily chart and shows how the stock price fell in an ABC correction from the high reached in October 2007. It also shows the recovery, which exceeded the 61.8% Fibonacci retracement level. The chart is suggesting that the share price is currently in a fourth-wave correction. However, the Elliott wave count of Advanced GET is suggesting that wave 3 may not be complete and has shown a possible wave 3 target at $36.56 as a 63% probability (PTI 63).

The present consolidation is a flag and should a breakout occur at $30.97, all this could well be a reality. The program will automatically change its wave count accordingly, should this happen.

The relative strength index (RSI), which is trending down, suggests otherwise. The indicator gave a sell signal on May 6 when the stock price was $31.47. Admittedly, the RSI could move back up again, and retest the 70 level. This would, of course, depend on the strength of the flag formation, but for the moment I would rather err on the side of caution and place the share on my watchlist.

DreamWorks (DWA) is certainly a stock to be watched and purchased on any decent correction, once the current market negativity is over.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Is DreamWorks A Dream Or A Nightmare?

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