Shares of Nike (NYSE:NKE) have corrected by about 8% lower over the past couple of weeks. While the longer-term picture remains challenging (the stock has limited upside from its all-time highs), in the near-term, NKE stock is setting up for a tradeable bounce against a well-defined area of technical support.
Following a fresh batch of concerns around the much-awaited U.S.-China trade deal in recent days, this week is now one of binary risk. In other words, any news flow around this can either be bullish or bearish for a trade but none of it is material until Thursday or Friday when the two parties sit down together. For my money, this is now a week to sit it out or risk getting chopped up … at least until further notice that is.
Knowing when not to trade is often more important than constantly looking for new ideas. Much financial and psychological pain as a trader can be avoided by sitting out real uncertain times in markets where risk is binary. This current week to me is one of those weeks.
Nevertheless, if treated with care there is always an opportunity worth considering somewhere and NKE stock looks interesting for a bullish setup here.
NKE Stock Charts
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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
For some perspective let’s first take a gander at the multi-year weekly chart for Nike stock. Here we see that over the past decade or so NKE has reached the upper end of the trading range (as marked by the two black parallels) three times. Most recently, this took place in March and again in April. Historically seen from this multi-year angle, each of the steep rallies into the upper end of the trading range have resulted in meaningful pullbacks (mean-reversion moves).
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Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
While I have my concerns around the bigger picture chart above, in the near-term NKE stock now offers an opportunity for a bounce because of the recent “pullback”.
I often discuss so-called “confluence areas” on charts, which are made up of either a layer of technical support or technical resistance. Currently NKE stock is nearing a confluence zone of support around the $80 – $82 area. This zone is made up of the red 200-day and blue 100-day moving averages’ horizontal support from January 2019 and March, as well as a Fibonacci retracement support area.
Active investors and traders could look to take advantage of the recent pullback and buy NKE stock in the confluence support area between $80 – $82, using a next upside profit target at the $85 level and any break and hold below the red 200-day moving average would be a stop loss signal.
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