This isn't Mickey Mouse stuff.
The Walt Disney Co. (DIS) - Get Report is set to announce third-quarter earnings after the bell Tuesday, a data dump that has the potential to send shares of the entertainment giant skyrocketing. Monday we'll take an early look at what Wall Street's expecting and how the price action is setting up shares of Disney for a rip if those numbers hit their mark.
Shares closed trading down 1.24% to $106.35.
First, the earnings preview.
Disney is expected to deliver a $1.55 per share profit for the third quarter, a number that represents a modest decrease from the same period last year. Those analyst best-guesses are clustered tightly for Disney this quarter. Out of 28 estimates, the low-end of the spectrum is $1.49, while the high end is $1.63. That represents a high degree of analyst certainty over Disney's earnings -- which means that the firm could generate some upside if it manages to materially surprise investors.
Generally, Disney's earnings reactions are modest. But this year could be different. That's because shares are starting things off within grabbing distance of a key breakout level.
Here's the chart:
Since the middle of May, Disney has been forming a pretty textbook example of a rounding bottom pattern, a bullish reversal setup that signals a gradual shift in control of shares from sellers to buyers.
The rounding bottom is one of those price setups that looks just like it sounds. The buy signal comes on a push through the resistance level that identifies the upside limit for shares over the course of the pattern. In Disney's case, that breakout level to watch is $108.
Shares momentarily broke out above $108 at the end of July, but they quickly retreated back down below that breakout level, showing a classic bull trap. Despite the fake-out, Disney's rounding-bottom pattern continues to be in play in August -- but investors shouldn't expect any kind of decisive breakout move until after earnings have been released. Risk-averse investors should consider waiting for the $110 level to get taken out before pulling the trigger on this price setup -- while it'll mean missing out on $2 of upside potential, Disney's ability to hold above $110 also increases the likelihood of a profitable outcome.
Price momentum, measured by 14-day RSI at the top of the price chart, signals building buying pressure in Disney. Our momentum gauge has been making higher lows of its own, an indication that buyers are building steam in this stock.
From a risk-management standpoint, the 200-day moving average is the line in the sand that looks like a good place to park a stop loss. If DIS violates the 200-day, you don't want to own it anymore.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.