Disney Near 20% Profit-Taking Level from May Breakout

Steven Bobson, Europe & Americas Editor
September 28, 2012 /

When should an income investor consider taking profits in a stock?

The question is flawed in one respect. It implies that sell strategies differ for the income investor. But the market doesn’t change the way it behaves simply because the investor is fixated on a dividend.

Sell rules are sell rules regardless of why the stock was bought. In the May 4 issue of IBD,Walt Disney ( DIS ) was discussed.

The article pointed out that Disney had shaped a 14-month long base. The handle offered a potential buy point at 44.60.

IBD also noted that a long base can be a positive. Price losses can drive weak holders out of a stock, but so can time. The fewer the weak holders, the better. Breakouts are less likely to be harmed by nervous selling when weak holders are few.

Disney broke out on May 9, clearing the buy point in volume that was 149% above average.

Over the next eight sessions, the stock corrected as much as 2.4% below the ideal buy point in declining volume. With that weak selling out of the way, Disney advanced.

The climb was steady with the stock holding above its 50-day line.

In recent sessions, the stock was as much as 19.7% above the 44.60 entry. A pullback Tuesday and Wednesday trimmed the gain to 16.5%.

The 20%-to-25% profit level is an area where many IBD-style investors will sell. That’s because a stock will often begin to consolidate after notching a 20% to 25% gain from a breakout.

So, investors who bought Disney on the May breakout could consider taking profits.

The fundamentals discussed on May 4 haven’t deteriorated for Disney. In fact, they’ve improved. In May, the Street expected earnings to rise 16% in fiscal 2012 ending in September. Now analysts have upped expectations to 21%.

Shouldn’t that affect the sell strategy? No. Selling is almost always dictated by chart action.

What about waiting for the dividend payout before selling?

Normally, that’s not a good idea because normal price action can erase enough to equal a quarterly payment.

In Disney’s case, it’s an especially bad idea because the dividend is paid once a year.


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