Disney's Q2 Earnings Price Action Sends These Signals About The Stock

It is hard to predict where an issue will go the day after an earnings report. Technical analysis can give you some guidelines, but how investors will react to either good or bad reports is random. Yet the technical levels from that session can provide some guidelines to follow to help predict the future course of price action.

The above scenario applies to Walt Disney Co DIS, which had one of its best days in months, rallying $5.23 or 4.7% to close at $117.69 Thursday following its second-quarter report. The price action from Thursday and its implications for Friday's session make it the PreMarket Prep Stock of the Day.

What A Rally: Disney bottomed well after the S&P 500 index on July 14 at $90.23. That marked the lowest level for the issue since April 2020 at $92.56 and was well above its pandemic low of $79.07.

Interestingly, the issue posted its high for the rebound ($112.67) and closing high for the rebound on Wednesday at ($112.43). From its July low, that made for a gain of $22.20 or 24.6%.

Disney's Q2 Beat: After the close on Wednesday, the company reported quarterly earnings of $1.09 per share, which beat the analyst consensus estimate of $1 by 9%.

The Mouse reported quarterly sales of $21.5 billion, which beat the analyst consensus estimate of $20.49 billion by $4.95 billion. This is a 26.33% increase over sales of $17.02 billion in the same period last year.

In addition, Disney added 14.4 million subscribers for Disney+ in the third quarter for a total of 152.1 million, up from the 137.7 million reported in the second quarter. Finally, the company announced it was raising prices for Disney+ as well as other Disney streaming packages.

Thursday's Disney Price Action: After a much higher open Thursday ($122.21 vs. $112.43), the issue continued in that direction to $123.27 and reversed course. The ensuing decline found support well ahead of the top of Wednesday’s range ($112.67), only reaching $117.33, and ended the session just above that at $117.69.

PreMarket Prep's Take: Co-host Dennis Dick, who has been building a long position in the issue starting at much higher prices and averaging down, said he decided to trim some of his stake.

“I sold some into the rally, as the issue was my single largest stock position in my portfolio and I wanted to trim some of it," Dick said. “I am still a long-term believer in the company but still see trouble ahead of the markets.”

Gap And Go? The ideal scenario for investors that are long the issue is for Thursday’s low ($117.33) not to be violated.

The reason: there is a higher probability the issue will drift lower and fill the void in price (down to $112.67) that was created by the better-than-expected earnings report.

In the event the gap is filled, the issue may go to retrace even more of the monster rally it had. A 50% retracement of the recent rally ($90.23-$123.27) would take the issue down to $106.75.

Another level that investors may want to focus on besides the breach of Thursday’s low is the closing price of Disney over the next few days. An improvement in that level may be an indication there is still buying interest despite the rapid price appreciation on Thursday.

As of 11:30 a.m. EST, the issue has not revisited Thursday’s close and is trading higher on the session by $2.70 at $120.39.

Also, it important for the issue to keep making new highs following the report. For now, that stands at Thursday’s high of $123.27.

The discussion on the issue from Friday’s show can be found here: Disclosure: "PreMarket Prep" co-host Dennis Dick is long shares of Disney.

Photo via Shutterstock.