by Colin Cieszynski, CFA, CMT, CFTe Chief Market Strategist CMC Markets Ahead of the upcoming Cannes Film Festival and summer blockbuster season, Colin Cieszynski analyses movie and entertainment stocks post-Oscar award season earlier this year and whether it has lost its momentum. Within this report Colin discusses: • The seasonal trends in movie stocks over the past 25 years • The performance of key movie stocks in 2015 • How movie blockbusters such as Avengers: Age of Ultron and the highly anticipated Star Wars Episode VII: The Force Awakens could impact the future box office for Disney Since Oscar season back in February, movie and entertainment stocks have been outperforming and continuing to advance despite a choppy overall US market. However, with summer blockbuster season now well underway, the sector many have started to run out of stardust. Based on the combination of historical seasonality and recent trends, it appears possible that the upcoming Cannes Film Festival could be the final curtain call for a while. Seasonality in Movie Stocks Over the last 25 years, movie stocks have had their ups and downs depending on the time of the year. Historically the sector has gotten the year off to a strong start building on the momentum around Oscar season and speculation on the summer blockbuster season. All of the hype and speculation that drives stocks higher ahead of big events has tended to unwind once the big films actually get released (the classic “buy on rumour sell on news”). Part of this may be due to the weaker seasonal trends for stock markets in general (the classic “Exit in May and go away”), but the table below shows that the summer correction in the movie sector has historically been deeper than that for the overall market. The summer swoon for movie stocks has tended to be concentrated between July and September the two biggest film festivals of the year, Cannes in May and Toronto in September. After the Toronto Festival (TIFF) speculation about the Christmas box blockbuster season and Oscar contender’s starts to ramp up, which has historically driven rebound towards the end of the year.
|Average Return 25 years|
|Dow||S&P Sector Index||Sector vs Dow|
Source: CMC Markets Movie Stocks in 2015: The Story So Far After getting off to a rough start in January, movie stocks rebounded strongly between February and April, with the sector outperforming the Dow in all three months. In the first few days of May, however, the tide appears to have turned with every stock in the sector except for Disney posting a loss on the month to date. So far this year, Disney has consistently been the strongest performer with a positive return in all months so far. Sony has also been strong with three months of 10% gains offset by two small corrections. Despite its win at the Oscars for Birdman, Fox has been consistent weak performer of the big movie houses so far this year with four down months and one flat. Time Warner has been close behind with four losing months but a bigger rebound month. IMAX, Lions Gate and Comcast have also been choppy this year with significant moves in both directions from month to month.
|2015 Performance relative to Dow|
|S&P Sector Index||Time Warner||Disney||21st Century Fox||Viacom (Paramount)||Sony US (Columbia)||Comcast (Universal)||Lion's Gate||MGM Holdings||Imax|
|May (to May 6th)||(0.81%)||(0.93%)||0.91%||(1.18%)||(2.44%)||(0.90%)||(0.18%)||(1.01%)||(0.01%)||(0.76%)|
Source: CMC Markets Focus Chart: Walt Disney One of the biggest questions facing movie stocks this summer is whether Disney, which has done so well and so could be vulnerable to a correction this summer between the highly successful release of Avengers: Age of Ultron and the buildup toward the highly anticipated release of Star Wars Episode VII: The Force Awakens in December . In the March 2015 quarter, Disney was unable to keep up with the $1.28/share it earned a year earlier when Frozen was still in theatres, but the $1.23 it did post was still better than the $1.10 the street had expected. For the June quarter, the street is currently anticipating Disney to earn $1.42 on revenues of $13.1 billion up from $1.28 in the June quarter and $1 01 in the same quarter back in 2012 when the first Avengers film came out. Source: CMC Markets Since bottoming out in October, Disney shares have been under steady accumulation, rising in a step pattern of rally phases followed by consolidation at higher levels. Earlier this month, the shares traded up to a new high but this was not confirmed by the RSI indicator, a negative divergence that suggests slowing upward momentum. In recent sessions, the shares have slipped back under $110.00 from a high near $113.75, and it appears a common trading correction may be starting. Initial support may appear in the $105.75 to $107.00 range where the 50-day moving average and a 23% retracement of the previous uptrend cluster. An additional potential support zone appears in the $99.00 to $101.00 range where the top of an old gap, a round number and a 38% retracement all converge.