The post-Christmas bounce on Wall Street got off to a great start last week, and it is a great time to take advantage with a bullish put write on Nike, Inc. (NASDAQ:NKE).
The S&P 500 has reached new all-time highs on both trading days since the holiday break, and it looks like it could open higher today.
It’s hard for traders not to get excited when they see the labor market tightening and consumers opening their wallets to buy more goods.
According to Mastercard, holiday retail sales rose 3.4% this year, with e-commerce sales rising a whopping 18.8%. Amazon (NASDAQ:AMZN) confirmed this trend last Thursday when it said more people used Amazon Prime during the holiday season than ever before.
With consumers flexing their spending muscle, we think it’s time to add another consumer goods stock — NKE — to your portfolio.
Another Successful Earnings Report
We’ve been in multiple successful trades on NKE during the past year, and we think this trade will play out just as well. The last time we recommended a position on NKE, the market had just gotten positive consumer spending news.
Since then the company has reported earnings. On Dec. 19, NKE blew expectations out of the water. The company beat revenue expectations by $240 million and earnings expectations by $0.12 per share — reporting results of $10.33 billion and $0.70 per share, respectively, for the quarter.
This report only covered NKE’s performance for the quarter that ended on Nov. 30, so the stock hadn’t even seen the full effect of the holiday shopping boom. It’s also the company’s second earnings beat in a row.
As good as this news was, traders greeted it with some profit taking instead of sending the stock higher.
But now, in the wake of the strong holiday season, NKE is heading higher again.
Pushing Higher After Profit Taking
In the three weeks leading up to the company’s earnings announcement, the stock had risen from $92 to $101, and traders wanted to lock in those gains. This type of reaction is perfectly normal. It’s where the old saying “buy the rumor, sell the news” comes from.
Daily Chart of Nike, Inc. (NKE) — Chart Source: TradingView
In the chart above, you can see the profit taking that followed its earnings report didn’t last long. NKE bounced off the $100 level. That bottom could act as support going forward, and it would make an excellent strike price for a short-term put write on NKE.
We expect NKE to continue moving higher. The stock has broken above its post-earnings high of $101.40, and the strong consumer spending news should help push the stock further above $100.
We recommend looking for an expiration date in January that offers decent premium. NKE is still vulnerable to bad trade news, and since the first phase of the U.S.-China trade deal remains unsigned, you don’t want to take on too much risk with 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.