Disney's (NYSE:DIS) stock surged in after-market trading as much as 9% after the entertainment giant surpassed earnings estimates when it reported results yesterday. At the time of writing, the premarket price was $158.49, an $11.26, or 7.65% increase since Wednesday's close.
The stock's valuation rose after management reported that Disney+ added almost 12 million subscribers in the last quarter, beating estimates. Also, revenue from its parks, experiences and products division increased $7.2 billion, precisely double the number reported in the corresponding quarter a year earlier. So, will the stock keep rising? Not necessarily.
We marked the premarket quote with a broken red line. Note that it's precisely at the same level as the recent January peak and last year's January's low.
We can see very clearly how support turned to resistance on the chart. Note that the support of 2020 is above the 2019 high. Traders remembered that increased demand broke that opposition, surging 28.25% between Dec. 7 and Mar. 8. That is why when the price failed to bounce again off that level on Nov. 15 and failed again to cross back over it on Jan. 3, disappointed traders sold off.
Before the earnings release, the price rebounded off the falling channel bottom and crossed back over the 200 DMA. The current resistance is holding back the price. However, even if it does brave higher, bulls are likely to be driven back by bears waiting at the top of the falling channel.
Trading Strategies
Conservative traders should wait for the price to break the falling channel—because as earnings showed, business is strong—or for evidence of distribution at the top of the channel.
Moderate traders would sell if today's price produced a long red candle.
According to a trading plan, aggressive traders could short, without needing to justify the risk of not waiting for confirmation. Here is a sample including the basic elements of a sound plan:
Trade Sample - Short
- Entry: $165
- Stop-Loss: $170
- Risk: $5
- Target: $140
- Reward: $25
- Risk-Reward Ratio: 1:5