How To Trade Disney's Stock Heading Into Q1 Earnings: Should Bulls Be Confident?

Walt Disney Co DIS was trading about 3% higher on Wednesday as it headed into its first-quarter 2022 earnings print scheduled to be released after Wednesday's market close.

Traders and investors will be watching to see if Disney has been able to increase visitor numbers at its theme parks and whether the company has been able to sustain or increase its Disney+ subscription numbers, which surged during the peak of lockdown orders brought on by the COVID-19 pandemic.

When Disney reported its fourth-quarter revenue beat on Nov. 10, the stock gapped down almost 6% the following day because its average revenue per user for Disney+ declined 9% year over year.

From a technical analysis perspective, Disney’s stock looks set to climb higher but it should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat. Options traders particularly, those who are holding close dated calls or puts take on extra risk because the intuitions writing the options increase premiums to account for implied volatility.

See Also: Here's How Morgan Stanley Views Disney

The Disney Chart: Disney reversed course into an uptrend on Jan. 24 and on Feb. 3 printed a higher low within the pattern, which Benzinga called out the day prior. On Wednesday, Disney printed a higher high above the Feb. 1 high of $144.69, which further confirmed the trend.

When Disney reached its Jan. 24 lows, it mostly filled a gap between $128.66 and $133.86, which should give bulls more confidence going forward. On Wednesday, Disney was working to fill an upper gap between the $144.69 to $147.15 range and if Disney has a bullish reaction to its earnings print, it could work its way back up into a higher gap between $153.13 and $155.17.

If Disney has a bearish or muted reaction to its earnings print, the current uptrend will remain intact as long as the stock doesn’t fall below the Feb. 3 low-of-day at the $139.25 mark. If the level is held and bulls come in to buy the dip on a possible gap down, it will allow Disney to print another consecutive higher low, which would provide a solid entry point for traders not already in a position.

Disney is trading above the eight-day and 21-day exponential moving averages (EMAs) but the eight-day EMA is trending below the 21-day. If Disney is able to remain above the 21-day EMA the eight-day will eventually cross above it, which would be bullish.

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• Bulls want to see a bullish reaction to Disney’s earnings to prompt big bullish volume to enter the stock and drive up over the 50-day simple moving average, which would then indicate longer-term sentiment has turned bullish. There is resistance above at $147.85 and $153.88.
• Bears want to see big bearish volume come in following the earnings print drop the stock down to print a lower low to negate the uptrend. There is support below at $141.87 and $137.14.

See Also: If You Invested $1,000 In Walt Disney's Stock One Year Ago, Here's How Much You'd Have Now