Athletics giant Nike (NYSE:NKE) has stitched together a pattern off and on the price chart signaling a second bearish swing is in the works. And for fleet-of-foot traders, it’s time to play Nike stock as a short.
Although Nike stock has been a darling of Wall Street for some time now, the former trendsetter is experiencing a mood swing.
After an explosive 33% rebound from December’s bottom to market-leading record highs in mid-March, NKE stock has rightfully come under pressure following a surprising, but modest sales shortfall in Nike’s North American market coupled with soft guidance from management.
Bulls have been quick to respond with excuses such as “it’s not just us”, the timing of fresh product roll-outs and even an unfortunate one-off, high-profile basketball misstep (on the actual court) where Nike’s trademark swoosh may have made a whoosh-like sound under the duress of a ruptured shoe.
Worse yet, with bulls being all talk and failing to make a legitimate counterattack on the price chart after NKE’s earnings-driven, single session 6.61% drop, the evidence to support a bottom simply isn’t there. In fact, with Tuesday’s closing bell signaling the end of play for bulls, it’s time for bears to suit up and “just do it”.
NKE Stock Daily Chart
With NKE stock’s bearish late March earnings reaction, buying shares is no longer looking like a fashionable or profitable play for investors. The slamming of Nike technically damaged shares by sending the stock beneath a high-handle pattern, which had been attempting to find its footing off last fall’s all-time-highs.
In subsequent trade over several sessions, NKE stock did rebound. However, bulls failed to take out the post-earnings high and 2018’s benchmark. In the process, a hurdle has become a more forceful obstacle. Even worse, the price action has formed a bear flag pattern that has just been confirmed.
Following Tuesday’s session, Nike shares are hinting lower prices are in store and possibly a larger correction after Nike stock finished down 1.01% while confirming a pivot high for the bearish flag. And that’s looking like a slam dunk of sorts for bearish shorts.
Shorting Nike Stock
For like-minded traders willing to take advantage of NKE stock’s bearish environment off and on the price chart, the recommendation is to simply short shares right now. I’d also use an initial stop-loss modestly above the flag’s pivot high. Suggested risk of 2.5% keeps the short NKE exposure well-contained. It also smartly allows for a bit of wiggle room, while still respecting shifting chart conditions and a potential ‘game over’ situation for bears if resistance falls to the wayside.
Optimistically, if Nike stock does begin to backtrack, I’d set a first price target for profit taking at $80. This target lines up well with the 38% retracement level, as well as a whole number decade mark that Wall Street often likes to bet on. Further, peeling off some short NKE stock position risk at $80 locks in profits in excess of twice the initial exposure. And that’s a good start to playing the game like a pro.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.