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VOLUME


Down Goes Disney!

09/29/04 03:45:12 PM
by David Penn

Big volume on a 2.5% down day does not bode well for the guardians of the Magic Kingdom.

Security:   DIS
Position:   N/A

Maybe it was the article in Reason magazine criticizing New York mayor Michael Bloomberg for turning New York into a "theme park parody of itself ..." a "ManhattanLand, an island of smokeless, sterile cafes where Times Square is a wholly owned subsidiary of the Disney corporation." But clearly something foul was in Disney's drinking water yesterday, as the Dow Jones component was suddenly hit with a powerful wave of selling.

Disney was down nearly 2.5% by the close of trading on Tuesday. And the fact that that move came on volume that was more than twice the daily volume for the past month only underscores how bearish the market for Disney shares may be becoming.

Figure 1: Disney Co. A 30-day high in volume accompanies Disney's descent below its 20- and 50-day exponential moving averages.
Graphic provided by: Prophet Financial Systems, Inc..
 
Were the volume spike in late September to have occurred when the last such spike did (that is, the mid-August lows), then there might be reason to suspect that a selling climax had occurred. A selling climax occurs when a market makes a significant low on sizable -- if not overwhelming -- volume. In such a scenario, the sellers are said to have exhausted themselves and, with nobody left to sell, value-oriented buyers begin probing among the wreckage for salvage.

There are some factors arguing against further near-term declines. The lower shadows on the Tuesday and Wednesday (so far) candlesticks are longer than I'd prefer, suggesting some signs of selling fatigue. In addition, there is a significant amount of support at the 22.50 level -- the level being contested even as I write.


Should shares of Disney penetrate this 22.50 level, then there will be precious little to stop them from falling further, perhaps to the 21.00 level in a test of the August lows (for more on the Dow Jones Industrial Average, of which Disney is a component, and the possibility of a test of the August lows, see my Traders.com Advantage article "Back To The August Lows?" from September 24). It is hard to tell if those selling Disney on Tuesday were those who profited from Disney's 30-day bull market from mid-August to mid-September and were now taking profits, or if they were significant amounts of new sellers (that is, shorts) entering the market in the wake of the negative stochastic divergence that began to be evident by mid-September.

But in either event, Disney now appears to have two smallish consolidation ranges -- one in mid-September and the other in late August -- that will likely prove to be stiff resistance on any attempt to regain the rally.



David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

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