Nike Inc, Under Armour Inc Stock Charts Show Continued Weakness (UA NKE)

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Shares of Nike Inc (NKE) have been in a downtrend since they peaked north of $65 in mid-March. The 52-week high is just above of $68, and the 50-day moving average looks nasty.

Trouble started in mid-April when the 50-day moving average breached the 200-day moving average, which formed a “death cross.” This is usually a bearish setup, but I often mention that “stretch” levels can come into play, which is what we are currently seeing in the market.

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Shares have rallied back to $55 this week, and that has set up a great opportunity to possibly “short” the stock by using put options. While a bearish position would have risk to $56 to $57 over the near term, a move below $53 would represent serious trouble for the stock and could lead to a possible backtest to $50.

I have traded Nike many times over the years, although usually in a bullish fashion around earnings. The company isn’t scheduled to announce its next set of results until later this month on June 28 and, like I always say, trading earnings can be tricky.

Analysts expect Nike to earn 48 cents a share on revenue of $8.28 billion. Nike has blown away estimates over the past four quarters by 6 cents, 2 cents and twice by 7 cents, respectively. Shares have responded well over the years on earnings beats, but they fell nearly 4% after the last report in March.

It is often hard to short a strong blue chip, or “bellwether” company, based on its reputation and chart action over the years, but NKE looks primed for a continued pullback.

NKE, UA Stock Options

The NKE July $52.50 puts (NKE160715P00052500, $1.36, down 10 cents) look like a juicy play, as these options will easily double if shares fall below $50 by mid-July. These options were on my radar for a potential trade, but I didn’t like that they gapped up 30%-plus Thursday morning, although they’ve since fallen a bit.

The NKE July $50 puts (NKE160715P00050000, 68 cents, down 5 cents) zoomed nearly 50% on Thursday’s pullback in the stock and, while I like them at current levels, I would rather trade the aforementioned $52.50 strike put options at cheaper prices if shares rebound back to double-nickels ($55). For now, I am still on the sidelines.

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As a “pair trade,” Under Armour Inc (UA) stock is in the same boat as far as the technical picture. Near-term resistance is at $38 to $39, and Thursday’s pullback gets support at $36 to $35 back in the mix.

I’m more bullish on UA than I am on NKE, but both charts are telling me that bearish trades are the way to go with these names over the near term.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/ua-nke-stock-under-armour-nike-charts-options-trade/.

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