Nike (NKE - Get Report) opened higher on Tuesday as Wall Street expects a positive reaction to earnings when it reports after the closing bell on Tues., Sept. 24. My call is to book profits on strength to its quarterly and monthly risky levels at $90.22 and $93.81, respectively. The stock set its all-time intraday high of $90.00 on April 18 and has moved sideways since then. The technicals are positive with a "golden cross" on its daily chart and its weekly chart is positive. Fundamentally, the stock is not cheap with a P/E ratio 34.83 and a puny dividend of 1.02%, according to Macrotrends.
The stock closed Monday at $87.69, up 18.3% year to date, and in bull market territory 31.8% above its Dec. 20 low of $66.53. From the April 18 high of $90.00 to the May 31 low of $77.07 the stock declined with a 14% correction, which is being consolidated before the earnings release after today's close. On June 27, Nike missed earnings-per-share estimates for the first time since Dec. 20, 2012. The stock rallied nonetheless to a secondary high of $89.87 set on July 15 then had another correction decline of 12.9% to a low of $78.19 on Aug. 5. This illustrates that Nike has had a volatile trading range for most of 2019.
Analysts expect Nike to earn 71 cents per share when quarterly results are released after the close on Sept. 24. Wall Street says that the sports apparel and shoemaker lead the competition in both sales and net income. The consensus is that the stock will breakout on today's earnings report. I don't disagree, but I view strength to my risky levels as an opportunity to book profits. Beware that most Nike's sales are to overseas markets with the largest growth in China. The question is whether slowing economic growth overseas and affects of the China trade war are hurting Nike's bottom line?
The Daily Chart for Nike
Courtesy of Refinitiv XENITH
The daily chart for Nike shows the formation of a "golden cross" on Feb. 13 when the 50-day simple moving average rose above the 200-day simple moving average indicating that higher prices would follow. This tracked the stock to its all-time intraday high of $90.00 on April 18. The annual pivot at $81.19 was generated from my proprietary analytics following the input of the 2018 close of $74.14. The annual pivot has been a magnet crossed many times between Jan. 21 and Aug. 26 as buying opportunities. At midyear, we have had a semiannual pivot at $81.95. The third-quarter risky level is $90.22 with the risky level for Sept. at $93.81.
The Weekly Chart for Nike
Courtesy of Refinitiv XENITH
The weekly chart for Nike is positive with the stock above its five-week modified moving average of $85.75. The stock is well above its 200-week simple moving average or "reversion to the mean" at $66.12. This key moving average was last tested as a buying opportunity during the week of Oct. 20. 2017 when the average was $51.46. The 12x3x3 weekly slow stochastic reading is projected to rise to 68.13 this week up from 64.01 on Sept. 20.
Trading Strategy: Buy weakness to the semiannual and annual value levels at $81.95 and $81.19, respectively, and reduce holdings on strength to its quarterly and monthly risky levels at $90.22 and $93.81, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play.
The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.