The Disney Contradiction

The Walt Disney Co. is getting great recommendations from major investment houses. Despite all of this, Disney is still trading about 18 percent below its 52 week high. For value investors, this seems to point to a great entry point, but when it comes to short term trading, there are still a lot of question marks about the company. For example, after news was released that Disney would be expanding its online presence with partnerships with companies like Playbuzz and Vice, the company still dropped in price by about 0.2 percent, despite the fact that these companies have huge audiences, and target a different age group than what Disney usually attracts. The announcement should have been a huge boost for the company, but in reality, it did almost nothing.

Why is this happening, and how can short term traders—specifically binary options traders—overcome this volatility and the element of unpredictability? First, the general fundamentals of the company need to be taken in context. Yes, firms like Merrill Lynch are strongly recommending value investors to buy Disney. They have sold out opening day tickets to the new theme park in China, Zootopia did far better in the box office than expected, and the Star Wars franchise is giving the company huge profit numbers, and all of these things lend toward the fact that the company is going to keep going up in price. However, the fundamental data needs to be weighed against current sentiment. The fact that ESPN numbers are on the decline created a kneejerk reaction which hurt the company, and the hit or miss nature of many movies has caused investors to be a bit more cautious of Disney than they have been in the past. Zootopia was an exception as many movies lose money. Disney has broken this rule more often than not, but it still causes poor sentiment.

Next, realize that stock prices do not need to move in a coherent pattern. The upward trend may be up for Disney, but that doesn’t mean that it needs to go up every day. The shorter the expiry time is for the binary option that you execute, the higher the degree of variance will be, meaning that you move closer and closer to random chance. The shorter the expiry, the less you should rely on the fundamental factors described above, and the more heavily you should let technical indicators influence your decision. Things like sentiment can play a role in the short term, but the technical information needs to be prominent as short term trades are not as heavily impacted by these things, and more on the small movements that traders make. This goes for any company, and not just Disney, although Disney is a great example because of the apparent contradiction that is currently going on with its stock movement. It’s not a contradiction at all, in reality, but a normal part of how the market works. By being aware of this, you can more fully take advantage of the market and use it to help you make money, rather than be at its mercy.

Disney has a lot of good things going for it, and it’s more than likely a good long term buy. That doesn’t mean that it’s a good short term trade, though. Looking to the technical indicators will help to reveal when momentum is more likely to push Disney’s stock price up or down. Transferring these principles to any stock that you might be trading in the binary options market will be far more beneficial than just looking at where the stock should be going, and then acting upon it.