The S&P 500 soared to another new all-time high on Friday.
White House economic advisor Larry Kudlow kicked the bullishness off on Thursday night by telling attendees at a Council on Foreign Relations event that the U.S. and China are getting close to a trade agreement. Wall Street wants nothing more than to put the trade war with China behind it. We’re keeping our fingers crossed.
Then the Census Bureau added some bullish fuel to the fire Friday morning when it released the latest retail sales numbers. Analysts were looking for 0.1% growth last month, but the Census Bureau reported 0.3% growth. This is great news heading into the holiday shopping season. Consumers are standing ready with their wallets out.
In the past, we’ve recommended trades on Nike (NASDAQ:NKE) as a way to take advantage of a strong retail sector. The positive retail spending news has helped NKE continue its rise since it bounced up off key support at $90, and we think a put write is an excellent way to take advantage of the situation.
NKE’s Brand is Stronger Than Ever
According to a survey conducted by Piper Jaffray, NKE’s brand is as strong as ever heading into the holiday shopping season. Apparently, NKE is one brand teenagers still want to see in their stockings on Christmas morning.
And NKE’s strength is reflected in its recent dividend increase. The company raised its dividend to 11.4% last Thursday. This is a signal that management feels confident enough in the company’s future growth potential to lock itself into a higher dividend.
We also believe that NKE’s decision to end its partnership with Amazon so it can focus on higher-margin sales outlets and international sales growth is going to boost bottom-line earnings. NKE’s direct-to-consumer business started in 2017, and its success shows that companies don’t need to tie themselves down to third parties if they have strong enough brand recognition.
Support at $90
As you can see below, the price level at $90 served as resistance for NKE for most of 2019. The stock hit this level in mid-April and then again in mid-July. NKE finally generated enough bullish momentum to break up through this level following its latest earnings announcement on Sept. 24. We expect this old resistance level to hold as new support for the next few months.
Daily Chart of Nike, Inc. (NKE) — Chart Source: TradingView
NKE reports earnings on Dec. 19, which means the monthly options for December have extra implied volatility in the premium, giving us more bang for our buck on those options. Traders should be cautious about holding options through an earnings report. We think they’d be wise to either purchase an option with an earlier expiration or exit the options early, once they have lost value to time decay.
Either way, setting the strike price at $90, NKE’s new support level, is an excellent way to increase your chance of taking a profit on this position.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.
