The $358 billion Walt Disney Co. (NYSE: DIS) is practically marching toward entertainment industry domination. This past week, the giant announced its Disney+ movie and television streaming service had topped 100 million subscribers.
Looks like the Mandalorian's caught more than Baby Yoda.
For a little perspective: Netflix Corp. (NASDAQ: NFLX) has about 200 million subscribers, but it's been building on that since 2007.
Now, it's true that since the pandemic started a year ago, most streaming services have seen a healthy and, for the most part, permanent bump in subscriber numbers.
But Disney seems to be in a league of its own.
It was obviously never lacking in the popular films department, but it's been on a savvy acquisition spree for years now, grabbing outrageously lucrative entertainment franchises worth far in excess of $32.6 billion - Star Wars, the Marvel Cinematic Universe, The Simpsons, the Pixar animated flicks, and even National Geographic documentaries.
Still, it's not invincible, and I'm starting to see some signs of weakness that could add up to massive profits for folks on the right side of the trade...
Disney's Momentum Is Beginning to Slide
Disney's many entertainment "tentpoles" have obviously been more than enough to offset the steep losses Disney incurred when it had to shutter its lucrative global theme parks and cruise divisions.
The stock has come up more than 60% since October, without much in the way of revenue from its theme parks. That's like swimming the ocean with one hand tied behind your back.
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But, of course, these days, the end of the pandemic is looking closer than ever. Disney has announced its intention to begin a phased reopening of its theme parks in April - more revenue for the money mill.
Investors who were already eager to dive in suddenly see billions more reasons to buy. There's no denying that Disney has had a great run. Since October, DIS has climbed an impressive 61%, even with its parks shuttered.
But... I don't think that's the smart move right now, and this chart with price action and price momentum agrees - it shows a divergence that indicates a trend reversal could be just around the corner.
More than that, I think there's been a really hasty, mass movement into entertainment, travel, and leisure stocks, to the point that a lot of them are badly overbought. Disney is one, but Live Nation Entertainment Inc. (NYSE: LYV), Carnival Corp. (NYSE: CCL), Southwest Airlines Inc. (NYSE: LUV) are all way too hot right now. Most of these companies have yet to book actual revenue from reopening; it's all based on expectations right now.
Those expectations could very well prove to be right-on, but they're not there right now.
I don't think DIS shares can sustain this price for long. If you do happen to be long Disney, consider buying an umbrella and putting in a trailing stop order.
But to really cash in with what I think is very likely to be coming next, you'll need to buy puts on DIS shares, like the DIS Apr 16, 2021 $185 puts. If Disney goes 10% lower at anytime over the next month, you could be in the money.
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About the Author
Andrew Keene is a globally known trader and a renowned expert on all things options.