Shares of sports apparel company Nike (NKE) have held up well so far this week considering the shellacking in the broader market, particularly in the momentum names.
This relative strength, coupled with a strong technical pattern, should bode well for Nike stock in the near to possibly medium term.
Yesterday, aluminum producer Alcoa (AA) kicked off this latest earnings season. For the next few weeks, many stocks — more so than usual — are at risk of at least a one-day jolt in one direction or another in reaction to their earnings results, or those of a close competitor.
My general strategy during earnings season is to wait for earnings to pass in any given stock, then evaluate whether a high-probability trade is setting up after the stock has made an initial post-earnings move. While I might miss some big single-name stock moves this way, it also keeps me out of the risk of significant draw-downs were I to gamble by taking a trading position in a stock in anticipation of a certain earnings outcome ahead of the news.
The other strategy I like to use during earnings season is to focus on stocks that report earnings outside of the regular season and have a constructive-looking chart.
Enter NKE, which reported its latest batch of earnings back on June 26, and thus doesn’t have another earnings release until late September.
Nike Stock Charts
On the weekly multiyear chart, note that since October 2013, Nike stock has mostly consolidated sideways in the bigger picture. However, this consolidation phase has a bullish hue to it as it comes in the shape of bullish flag formation, which as the name indicates, tends to resolve to the upside.
When we zoom in on the daily chart of Nike stock, however, the bullish picture becomes even more apparent.
Note how closely together NKE’s 50-, 100- and 200-day simple moving averages currently are. Also note that Nike stock has a clearly-defined line of resistance, dating back to last December, which it must overcome to make another leg higher.
After gapping higher from the late June earnings announcement, Nike stock settled into a sideways consolidation phase, which is building a higher base for the stock. This higher base is taking place right below the resistance line, and thus is putting more pressure against it that should allow for a breakout sooner rather than later.
Active investors could use a daily close above $78.90 to go long NKE for a move toward the $84 area.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
