Shares of sports apparel company Nike Inc (NYSE: NKE ) have struggled and chopped back and forth in a big way year-to-date in 2017. On the surface, traders and investors didn't react well to the earnings report earlier this week either, yet there may be a potentially lucrative trade setting up from a reward to risk perspective.
Nike reported a quarter that beat analyst estimates but still showed declines in the bottom line due to margin pressures. Furthermore, the company gave a cautious outlook, all of which weighed on the price of NKE stock at the open of trading on Wednesday. The stock, however, saw its lows of the day in the early session and proceeded to climb higher through the close.
Through the lens of investor psychology that smells like sellers may have exhausted themselves at least in the near term, thus giving the bulls an opportunity for a trade.
NKE Stock Charts
Click to Enlarge
Moving averages legend: red - 200 week, blue - 100 week, yellow - 50 week
Before digging into the details of the trade setup, let's gain some much-needed perspective on the multiyear weekly chart. Here we see that NKE stock after a strong multiyear rise by late 2015 finally exhausted itself and began slipping into a meaningful corrective phase.
This corrective phase at the thus-far depths in October 2016 measured nearly -30% deep. With yesterday's morning sell-off following the latest earnings report, NKE stock bumped right into its red 200-week simple moving average and promptly bounced.
From a momentum perspective, note that the MACD momentum oscillator bottomed in 2016 and has made a series of higher lows since. From this perspective there is no doubt NKE stock remains in an intermediate-term bearish trend, but the near-term does look to offer some well-defined support at yesterday's lows.
Moving averages legend: red - 200 day, blue - 100 day, yellow - 50 day
On the daily chart, we see all of this a little more clearly. Note that Wednesday's selling stopped right at the bottom end of the nearly twelve-month trading range. Momentum on the daily chart too may have bottomed a couple of weeks ago and may be making a higher low now.
For me, NKE stock's intraday bounce on Wednesday is not yet the final buy trigger, but rather I am needing to see one more "follow-through buying confirmation day" to show me that Wednesday's intraday lows near the $51 mark did indeed exhaust the sellers at least in the near term.
If and when NKE stock can give us such a follow-through buying day and close back above $53.20 or thereabouts, then a trade higher toward $56 and possibly $58 could set up. Any strong bearish reversal on a daily closing basis would be an important stop loss signal.
Check out Anthony Mirhaydari's Daily Market Outlook for Sept. 28.
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