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Nike Earnings Preview: Where to Buy the Dip

Nike has been hot, rallying ahead of its second-quarter report. Here's how to trade the stock if we get a dip.

Even though they are down slightly on Thursday, Nike  (NKE) - Get Nike Inc. Report shares are coming into the company's earnings report red hot. 

Shares hit a new all-time high on Wednesday after breaching the $100 mark for the first time. Can the stock maintain momentum after Nike reports its second-quarter results, or will Nike finally need to catch its breath?

Micron  (MU) - Get Micron Technology Inc. Report came into its earnings report pretty hot as well, rallying more than 12% in less than two weeks. Still, that didn’t stop shares from popping on better-than-expected results. It’s no surprise that it’s Real Money’s Stock of the Day as a result.

In regards to Nike, there’s no guarantee the stock can continue higher like Micron did. The apparel and sports equipment maker will likely need to deliver better-than-expected earnings and revenue results, as well as provide a solid outlook.

If Nike can do that, then perhaps the stock can continue higher. Let’s look at the stock to see which key levels may be in focus.

Trading Nike Stock

Daily chart of Nike stock.

Daily chart of Nike stock.

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In September, Nike stock broke out over resistance, which came into play between $89 and $90. More important than the breakout though, this former level of resistance actually acted as support when shares pulled back a month later.

Further, the pullback didn’t result in a “V” bottom - where a sharp correction is met by an equally sharp rebound higher, leaving many investors frustrated by missing the dip.

Instead, Nike shares grinded along former resistance in a very tight range, trading between $89 and $91 for several weeks before moving higher. That was confirmation that bulls were in control as they refused to let shares break below prior resistance.

As Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.” Twain wasn’t talking about the stock market per se, but that doesn’t stop his outlook from being applicable.

Just as Nike broke out in September, it again broke out this month over the $96 level. After grinding along former resistance and now current support - a rhyme of price-action history - shares began to run higher again.

After five straight sessions of new all-time highs, Nike now sports an elevated relative strength index (RSI), which is shown via a blue circle on the chart and measures how overbought or oversold a given stock is. 

Should investors get a pullback in Nike stock, they should look for support between $96 and $97. If it holds, it’s likely a buy-the-dip opportunity. It’s also where the rising 20-day moving average comes into play. 

Below that and the 50-day moving average and the 78.6% retracement for the one-year may be in play near $93.35. If all else fails and Nike shares are really breaking down, $89 support and the 200-day moving average should buoy the name.