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Puke or Profit? How to Ride Disney After Earnings

Disney isn't collapsing but the stock has struggled to rally since topping out about two months ago. Here's how to trade it after earnings.

While many investors have been focused on growth stocks, Walt Disney  (DIS) - Get Walt Disney Company Report and others have slid by with much less pain. 

There may be a bear market in growth stocks, but that doesn’t mean the rest of the market is feeling the same pain. In fact, the Dow hit new all-time highs this week.

However, the stock market is large and made up of quite a few different currents. In a way, we could say Disney is too.

On the one hand, it’s a tech stock thanks to its blossoming streaming business. It’s quickly racked up more than 100 million subscribers for its Disney+ platform, not to mention its Hulu and ESPN+ offerings.

However, Roku  (ROKU) - Get Roku, Inc. Class A Report, Netflix  (NFLX) - Get Netflix, Inc. (NFLX) Report and other streaming leaders have been under pressure.

Disney’s also a reopening play as its studio and theme park businesses will benefit from an increase in more foot traffic. But like airlines, casinos and other travel-sensitive stocks, Disney topped out in March.

Disney is down about 11.25% ahead of earnings on Thursday after the stock markets close. How does Disney look when it comes to the technicals?

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Trading Disney

Weekly chart of Disney stock.

Weekly chart of Disney stock.

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There’s no denying some of Disney’s more attractive qualities. With that being said, let’s not forget that this stock has also rallied notably in anticipation of its current catalysts.

While the stock has not had much momentum lately - working on its seventh down week in the past nine weeks - doesn’t mean the setup is bearish. In fact, Disney stock is simply putting in a bull flag pattern, in my opinion.

There is some concern, though. 

For instance, I don’t like that shares are breaking below the 10-week and 21-week moving averages. I also don’t like that it’s struggling to hold the prior breakout zone between $180 to $182.

I also don’t like how Disney is flirting with a monthly-down rotation below the April low at $178.86.

A bearish post-earnings reaction could create a flush below all of these points. That could put the $165 to $170 area in play. This was notable support in the fourth and first quarters and it’s also near the 10-month moving average.

Absent a horrendous report, I would expect these support levels to buoy Disney stock should we see a further pullback. 

On the upside, it’s simple. I want to see Disney reclaim the 10-week moving average, thus putting it back above all of the aforementioned levels that currently put it in a troubling position.

That would create a weekly-up possibility over $189.22 and potentially put $200 in play above that.