Shares of Nike (NYSE:NKE) have been under plenty of pressure over the past few weeks. Intensifying trade talks with China aren’t helping, as Nike stock hits its lowest levels since January. Not all sports stocks are created equal though, as Under Armour (NYSE:UA, NYSE:UAA) continues to do just fine. Lululemon Athletica (NASDAQ:LULU) is doing okay, but not great, while Foot Locker (NYSE:FL) is tanking.
This year’s NBA Finals are interesting, given how many NBA pros have top shoe deals. Over the past few years, we’ve seen the Golden State Warriors face off with the Cleveland Cavaliers. That featured a number of Nike athletes, including Kevin Durant (the last two years), LeBron James and Kyrie Irving, among others. Under Armour, notably, had Stephen Curry on its side.
But this year matchup between Golden State and the Toronto Raptors features Durant with Nike, Curry with Under Armour and Kawhi Leonard with New Balance. It’s a diversified bunch, although it doesn’t help Nike that its star (Durant) has been injured for the first two games.
Sports Stocks to Watch
With game three of the NBA Finals coming up on Wednesday, I want to see if Nike stock specifically can shake its recent stigma. Not many were expecting the Raptors to put up a big fight against Golden State. But through two games, the series is pretty tight so far.
That’s important, because the longer this series goes, the more exposure Nike can get. In June 2015, Nike signed an eight-year apparel deal with the NBA. Further, the apparel maker just dropped a re-release of its Air Jordan 4 shoe, in its Raptor colorway. The company is doing exactly what it should do to keep attention flowing to its brand.
The question is, will it work?
Based on the last few earnings reports, Nike is doing well. But trade-war worries continue to weigh on the stock. If we can get some more-than-expected Nike-specific focus during the Finals, that may help with short-term sentiment. That’s assuming the stock market can find its footing — no pun intended — and slow its recent selloff.
However, sports stocks and Nike stock specifically will likely come under pressure should trade-war talk intensify. A global slowdown doesn’t do Nike any good, nor does a worsening trade war.
So while investors will have one eye on the NBA Finals, they’ll also be watching trade-war headlines to see how they impact sports stocks going forward.
Trading Nike Stock
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Basketball is a huge driver for Nike and the league doesn’t get any more attention than when it’s playoffs time. So far though, that’s not translating to a higher stock price. Nike stock is down 14% from its highs in mid-April.
Shares were able to rally about 1% on Monday in the face of another broad-market decline. Perhaps it’s a sign that the NBA Finals can give it a boost. It’s also bouncing off that $77 area, a key fourth-quarter resistance level that, once breached, propelled NKE stock higher in January.
It would be discouraging to see Nike lose this mark now. If it does, watch $75, the 61.8% retracement for the one-year range to give it another bounce. Below there and I wonder if investors can get lucky enough to nab a position in NKE for $70-ish. That would be a great long-term opportunity.
On the upside, say current levels hold. We first need to see Nike stock recapture the 50% retracement at $78. From there, a rally back to the $80 to $81 area can ensue. Particularly if trade headlines relent for a few sessions and investors can focus on Nike’s fundamentals and the Finals.
However, $80 to $81 is a big level. There it has the 200-day moving average, channel resistance, the 38.2% retracement and the downtrending 20-day moving average.
That’s a mouthful of numbers, but for simplicity sake, just know it could easily act as resistance. At least on Nike stock’s first test. Should it push through though, it could give shares — and sports stocks in general — a serious spark.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Kenwell did not hold a position in any of the aforementioned securities.
