Infinity And Beyond: Watch Out For Gap Fill As Disney's Stock Hits All-Time High

Walt Disney Co DIS shares jumped more than 10 percent Friday after the company announced its new Disney+ streaming service will launch Nov. 12 at a price of just $6.99 per month. The price significantly undercuts competitor Netflix, Inc. NFLX, creating an opportunity for Disney to gain meaningful market share.

The news sent Disney stock to new all-time highs, trading at around $129 in early Friday trading. There’s no question the news and the breakout are bullish developments for Disney traders, but those who missed Friday’s big move may soon get a second chance to snatch up Disney shares at under $120.

Gap Filling

Friday morning’s big move created a large gap in Disney’s chart between around $118 and $128. Experienced traders know these types of gaps tend to close over time before a bullish trend resumes. Gap fill traders often sell a stock after a large bullish gap is created, attempting to ride the stock back down until the gap is filled. At that point, previous resistance levels turn to support, and traders buy the stock on the bounce.

For traders who trade more on fundamentals than technicals, gap filling may not seem like an intuitive phenomenon. However, in terms of market dynamics, a large, immediate jump in share price often creates a temporary imbalance in buyers and sellers.

When a stock moves fluidly higher or lower, the buying and selling demand typically remains at or near equilibrium. When a stock jumps from $118 to $128, possible buyers in the $118 to $128 range are immediately discouraged by the higher price. At the same time, possible sellers in the $118 to $128 range are all of a sudden sitting on much larger profits than they had anticipating and are itching to pull the trigger and cash out.

Levels To Watch

Gaps happen extremely quickly, but the gap filling process tends to happen much more slowly over time. Sellers want to max out their profit and may be hesitant to exit a position immediately.

With Disney trading at new all-time highs, the stock has no major near-term resistance levels to speak of. Friday morning’s intraday high of $130.90, its opening price of $127.91 as well as Friday’s closing price will be critical in assessing near-term technical outlook next week. In addition, Disney traders can expect meaningful technical support in the $110 to $118 level, which previously served as strong resistance going all the way back to 2015.

At time of publication, Disney's stock traded at $127.58 per share.

Related Links:

4 Reasons RBC Continues To Love Netflix's Stock

Analyst: Video Service Highlights Apple's 'Law Of Large Numbers Problem'