In recent years, Nike Inc (NYSE:NKE) stock has been one of the best performing stocks. But in late 2015, this became too much of a good thing and the stock has shown both absolute and relative weakness ever since. NKE stock is currently lower by about 19% for the year and about 25% off its 2015 highs. Despite this under-performance Nike stock may have deeper to fall still.
After the close of trading for tomorrow, Dec. 20, Nike is scheduled to report its latest batch of earnings. NKE stock has a tendency to make important moves following its earnings reports, and given where the stock currently trades, this earnings report looks to be no different.
When I last discussed Nike stock on Sept. 30, I offered that the technical picture looked weak and it could become weaker still in the near-term. A few weeks later, the stock reached the upper end of my next downside target around the $48-mark. Since then, NKE stock bounced somewhat along with the broader stock market, but the price action both in absolute as well as in relative terms has been muted.
Nike Stock Charts
To give some perspective on the large move that Nike stock has staged in recent years, I crafted this multi-year chart. From 2012 into its 2015 highs, NKE stock rallied about 200%, which came on the back of an already steep rally in the years prior. As seen through this multi-year lens, when NKE stock was in the last innings of the big multi-year rally, it staged the classic blow-off rally that ultimately became unsustainable from a rate of chance perspective, giving way to the pullback we are witnessing here in 2016.
As a result of the pullback, the stock’s yellow 50-week moving average is now attempting to break below its blue 100-week moving average soon, which could push the stock further toward the red 200-week moving average currently residing around the $47-mark. A little below that, around the $45-mark is the 50% retracement of the entire 2012 to 2015 rally, which could also be a point of attraction lower for the stock’s near- to intermediate-term.
On the relative picture where I plotted NKE stock versus the S&P 500, we see that after showing too much relative strength in 2015, the relative weakness in 2016 has taken this ratio right back down to a major multi-year support line in a mean-reversion move. From this perspective, Nike stock may no longer see much relative under-performance, but could still see further selling pressure in absolute terms.
On the daily chart, we see that NKE stock’s post-election bounce has merely created another technical bear flag pattern. Last week, Nike stock rejected the bounce attempt and left notable bearish reversals behind on the daily and weekly charts .
I’m not a big fan of positioning in stocks ahead of their respective earnings announcements. But, should NKE stock break and hold below the $50-mark following the earnings report, then the next leg lower into the mid-$40s could be on its way and short positions could be legged into.
Alternatively, should Nike stock rally after earnings and overcome the $53-level, then counter-trend rally trades could be played with a first upside target in the mid-$50s, which also coincides with the red 200-day simple moving average.
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