Nike Inc (NYSE:NKE) shares, as a result of a steep rally off last August’s lows, went into technical overshooting mode, which had all the makings of a better intermediate-term top-building process. Indeed, Nike stock has fallen ever since, so despite a reflex rally over the past few weeks, NKE still is in the red for 2016.
Nike looks to be in an intermediate-term corrective phrase, so active traders and investors could look to sell into short/oversold rallies from here.
Repeat after me: In bull markets, we buy the dips; in bear markets, we sell the rallies. After a big six-year cyclical bull market off the 2009 financial crisis lows, most investors and traders alike have been conditioned to buy every dip blindly. This of course was helped by central bankers and politicians helping to prop up markets and thus giving those dip buyers false premises that this will continue into infinity.
Consider this; What if economic gravity and the cyclicality of the economy begins to work again and central bankers fail to prop up markets? So far in 2016, that’s what we have witnessed, and this in essence leaves these blind dip buyers walking around without underwear in this current bear market.
Nike Stock Charts
On NKE’s multiyear weekly chart, we see that after an orderly and steep incline since 2012 the stock took its slope vertical in the second half of 2015, which led to a big overshooting move that pushed Nike stock above multiyear resistance.
As I often discuss in this column, such overshooting moves rarely end well and usually see the stock mean-revert in a more volatile way than they otherwise would. In fact, such overshooting moves on the upside often also lead to undershooting moves in the corrective phase.
On the chart, we see that NKE stock so far in 2016 has pushed back into the multiyear channel but has yet to reach or breach the lower support line. Until the stock does so, I am a seller of rallies.
On the daily chart, we see that Nike stock in late December 2015 had a big bearish reversal or failed bullish breakout attempt, which ultimately was the final signal that the stock was ready to move lower. Since then, the stock has seen two counter-trend or oversold bounces, but so far, each one is leading to lower highs.
After the most recent multiweek rally NKE stock on Tuesday once again reached its yellow 50 day moving average, which served as resistance in January. This area now also matches up with some horizontal resistance. The stock still needs to confirm resistance by price action, which is to say that any bearish reversal (i.e., good down-day) between $60 and as high as $63 would likely offer bears a next chance to lean against the stock on the short side.
For the next couple of months, target the high $40s to low $50s. Investors also should be aware of Nike’s earnings report, scheduled for March 17.
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