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Nike Stock Lags. Here's When (and Why) to Buy the Dip.

Nike stock is gapping lower on earnings, but major support is close by. Here's what to watch for now.

After back-to-back rallies, the S&P 500 got off to a rough start on Friday -- but not as rough as Nike  (NKE) - Get NIKE, Inc. (NKE) Report, which opened lower by 5.35%.

The stock has since slid further, down almost 7% on the day after the athletic-apparel giant reported earnings. That’s even as the S&P 500 rallied back to flat on the day.

Now, with Nike down about 15% from the all-time highs last month, investors want to know if this is a dip to buy. 

For aggressive buyers, the answer is “yes.” For more conservative buyers, the answer is “soon.”

The reasoning is two-fold.

First, the technicals show support should come into play soon. Second, the fundamentals are strong. That’s despite the recent quarter where Nike missed on revenue expectations and provided a disappointing full-year outlook.

While revenue of $12.2 billion missed expectations of $12.46 billion, sales still grew 16% year over year. 

Further, earnings grew 22% year over year and topped analysts’ expectations.

It was Nike’s second-highest quarterly revenue figure ever, just behind last quarter’s sales mark. The earnings-per-share figure was a record.

So the issue with guidance? That comes down to supply-chain issues. Fair or not, they do affect Nike’s top and bottom lines, which in turn affect the stock price.

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Trading Nike Stock

Daily chart of Nike stock.

Daily chart of Nike stock.

Despite the fundamental impact, the Beaverton, Ore., company clearly is still a high-quality operation that justifies long-term ownership. But what do the technicals have to say?

I’m loving the risk-reward setup of the $145 to $147 area. 

This zone was major resistance in the fourth quarter of 2020 and first quarter of 2021. But then the stock gapped over this area in June on huge volume.

Not only that, but we have the 200-day and 10-month moving averages in this area as well. That gives us a reasonable risk-reward setup, as a break and close below this zone can allow traders to stop-out of Nike and either wait for a rotation back above $145 or a wait for a larger dip.

So we have our zone, how do we play it?

Aggressive buyers can justify a long position now in case we don’t quite get the dip down into the $145 to $147 zone. 

Further, a reclaim of the June gap-up low at $150.48 could give some confidence to the longs.

Conservative bulls may consider waiting for a dip down to the $145 to $147 zone. While more attractive from a risk perspective, the flip side is that buyers risk the stock not quite falling this far.

Given the company’s guidance, though, Nike stock might well get there.

Should all support fail, the major gap-fill level sits all the way down at $134.82.