Disney undefined stock will be in focus on Tuesday after the close, as the entertainment giant is due up to report its fiscal third-quarter earnings.
This one is tricky. On the one hand, Disney has some real positives here with its streaming platform. On the other hand, studio, theme park and cable revenues remain pressured.
Remember, the quarter will span calendar Q2, a time where Disney usually does quite well. There is usually a bevy of sports, while theme parks gain momentum and a full studio slate readies for summer and the second half.
Disney has seen its income statement hammered in recent months, as it feels the pressure from the coronavirus. The one bright spot here is Disney+, the Burbank, Calif., company’s streaming platform.
One could argue that covid-19 accelerated Disney’s streaming efforts years into the future, much as we’ve seen an acceleration in Netflix (NFLX) - Get Netflix, Inc. (NFLX) Report, Shopify (SHOP) - Get Shopify, Inc. Class A Report and other businesses.
As always, it’s not about what the company did last quarter, it’s about what it’s doing now and will do in the future. Will the return of sports and reopening of theme parks be enough to reignite the stock?
Trading Disney Stock
Right now, momentum is mixed in Disney stock. On the plus side, the stock has put in a series of higher lows since bottoming in March.
On the flip side, we’ve seen the 200-day moving average turn from support to resistance, while the stock also puts in a series of lower highs.
These lower highs and higher lows have created a wedge in the stock, increasing the odds of a larger move once we know which direction the stock will break in.
The mixed readings we can take away from the chart include the stock’s continued churn around the 20-day and 50-day moving averages, and the fact that its 47.5% rally from the lows lags the S&P 500’s 50.5% bounce.
That's despite Disney seeing a near-50% peak-to-trough decline vs. a ~35% decline in the index.
I am not predicting Disney’s earnings move. Instead, I want to trade the reaction.
On the upside, I want to see a close above $125. That will put the shares over wedge resistance, the 200-day moving average and the 61.8% retracement. From there, Disney stock will have to contend with the June high at $127.82.
Above that and the 78.6% retracement at $136.78 and the February gap up toward $139 are in play.
On the downside, look for a break of the July low at $112, as well as wedge support. Below puts the June low near $108 and the 38.2% retracement in play at $107.12. Below that and sub-$100 is possible.