Nike Inc (NYSE:NKE) has dropped more than 7% since reporting earnings in March, and as a result, NKE is now back at thinning technical support. And that support looks like it will break sooner or later. Investors can tell a lot by watching, and observing Nike stock continuously fail in its rally attempts since last October might be all we need to know.
When I last mused about NKE on March 10, I said the following:
“While Nike stock might be oversold in the intermediate-term, NKE also remains in a downtrend that likely has another 10% of downside before the sellers finally become exhausted.”
In today’s column, allow me to given an update on the state of Nike stock and where the opportunities for the bears may lie in the near-term.
Nike Stock Charts
In the bigger picture, NKE currently resides in the middle of what has been a a well-defined pattern to the upside since 2013. The cone-shaped channel within which the stock pushed higher ultimately was pierced to the upside in the fourth quarter of 2015 as Nike stock took its steep multiyear slope into vertical ascent mode.
Those types of moves rarely last, however. Indeed, after one last rally attempt in December, Nike began to drop 20% into the early February lows before bouncing. That bounce lasted right into the company’s latest earnings report (March 22), after which NKE stock promptly reversed lower again after making a lower high versus its late 2015 highs.
Given the steep slope of Nike stock through this longer-term lens, I continue to think that shares must consolidate lower into the mid-$40s to low-$50s and ultimately marginally violate the cone-shaped ascent at least at the margin before building a better-lasting bottom.
On the daily chart, we see leading up to the March 22 earnings report, NKE rallied more than 10% in a roughly straight line, only to gap lower and drop almost 4% the day following the report. After a few consolidation days, Nike stock proceeded to drop another 2.63% yesterday in what we may now label as follow-through selling following the post-earnings gap-down.
As a result, on Monday, NKE closed marginally below its red 200-day simple moving average and right at a diagonal support line. If the March 22 lower high in the stock was of any significance, we should ultimately see the stock drop to a lower low (below the February lows).
From here, active investors and traders may look to either add to or leg into some short exposure in the stock either via the options market by buying put spreads or similar, or using the stock directly.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! Download Serge’s Free Special Report: 6 Keys for Successful Trading and Investing.
