Nike (NKE) - Get NIKE, Inc. (NKE) Report opened higher Wednesday but remains in a trading range. My call is to countertrade the stock-buying weakness to its annual and semiannual pivots at $81.19 and $79.05, respectively, and sell strength to its quarterly risky level at $88.00.
There are many crosscurrents to consider that have been in the news recently. Most on Wall Street say this component of the Dow Jones Industrial Average is immune to tariffs and currency volatility. The daily and weekly charts say, not so fast! There are several factors at play when the athletic footwear and apparel retailer reports earnings after the close on Thursday, June 27.
Analysts expect Nike to earn 66 cents per share when quarterly results are released. Nike has a huge winning streak on the line. Looking back to December 2012, Nike has beaten EPS estimates every quarter. This was the backdrop for the stock to rally all the way to its all-time intraday high of $90.00 set on April 18. The stock is not cheap, as its P/E ratio is elevated at 33.01 with a dividend yield of just 1.04%, according to Macrotrends.
On Wednesday Treasury Secretary Mnuchin stated a trade agreement with China could soon be reached. This was the main reason Nike traded higher Wednesday morning. Bank of America/Merrill Lynch, who rate Nike underperform, raised its price target to $70 from $60.
There are still concerns about headwinds relative to demand and the impact of tariffs, though. Nike made a political move overnight by pulling a limited-edition athletic shoe in China due to the ongoing protests in Hong Kong. Some Chinese retailers also removed these shoes from store shelves.
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. While at this high the stock was above its second-quarter risky level at $88.00, which failed to hold on May 1. On May 29, the stock moved below its annual pivot at $81.19, its 200-day simple moving average at $80.69 and its semiannual pivot at $79.05 on China trade concerns. On May 31, the stock turned higher with the market and the stock is now between its annual pivot at $81.19 and its quarterly pivot at $88.00.
The Weekly Chart for Nike
Courtesy of Refinitiv XENITH
The weekly chart for Nike ended last week positive, but will be downgraded to neutral this week, if Friday's close is below its five-week modified moving average of $83.69. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $64.63. This key 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 end this week rising to 45.21 up from 40.65 on June 21.
Trading Strategy: Buy weakness to annual and semiannual value levels at $81.19 and $79.05, respectively, and reduce holdings on strength to its second-quarter risky level at $88.00. The lower monthly value level is $74.89.
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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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level changed at the end of January, February, March, April and May. The quarterly level was changed at the end of March. 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.
The close on June 28 is the second most important for 2019. This close is an input to my proprietary analytics and will generate new weekly, monthly, quarterly and semiannual levels.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.