Nike Beats on Revenue - Investors Should Trade in This Range

Given the extreme broad-market volatility, my call is to trade Nike between its weekly pivot at $73.03 and its semiannual pivot at $85.94.
Author:
Publish date:

Nike  (NKE) - Get Report took a 25-cent-a-share fiscal-third-quarter charge for Covid-19 and beat analysts' estimates on revenue, but the stock failed within a price gap going back to March 11. 

Given the extreme broad-market volatility, my call is to trade the range. This range is between its weekly pivot at $73.03 and its semiannual pivot at $85.94.

Shares of Nike at last check traded 11% higher at $80 as the Beaverton, Ore., sports-apparel and shoe retailer reported better-than-expected revenue. Here’s the details as reported by TheStreet.com.

The stock gapped above its weekly pivot at $73.03 this morning, then traded between $76.20 and $80.26, staying below the price gap to the March 11 low of $82.07.

At $80 shares of Nike are down 21% year to date and in bear-market territory 24% below their all-time intraday high of $105.62 tested on Jan. 22. 

Nike is also in bull-market territory a third above its March 18 low of $60.

The stock is not cheap, as its p/e multiple is nearly 22 with a dividend yield of 1.56%, according to Macrotrends.

The Daily Chart for Nike

Daily Chart For Nike

Daily Chart For Nike

Courtesy of Refinitiv XENITH

Nike had been above a golden cross since Feb. 13, 2019, when the 50-day simple moving average rose above the 200-day simple moving average. Such a move indicates that higher prices would follow. 

When this formation is in play, the strategy is to buy weakness to the 200-day simple moving average. This was doable on May 29, when the average was $80.58, and again Aug. 2, when the average was $81.30.

The bullish golden cross followed the stock to its all-time intraday high of $105.62 set on Jan. 22. 

The price gap below the 200-day SMA on March 6 ended this buy signal. Now the stock faces a potential death cross formation.

The stock failed above its annual pivot at $101.65 and stayed shy of its quarterly risky level which is above the chart at $108.49. 

The stock is below its monthly risky level at $99.13. 

The semiannual value level at $85.94 failed to hold on March 11. The weekly pivot is noted at $73.03.

The Weekly Chart for Nike

Weekly Chart For Nike

Weekly Chart For Nike

Courtesy of Refinitiv XENITH

The weekly chart for Nike is negative, with the stock below its five-week modified moving average of $85.45. 

The stock last week fell below its 200-week simple moving average, or reversion to the mean, at $70.50. It then popped back above it on the positive reaction to earnings.

The 12x3x3 weekly slow stochastic reading is projected to fall to 29.6 this week from 32.7 on March 20. 

At the high this reading was well above 90, putting the stock in an inflating parabolic bubble formation. This bubble popped into bear-market territory.

Trading Strategy: Buy weakness to the weekly pivot at $73.03 and reduce holdings on strength to its semiannual pivot at $85.94.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the past nine closes in these time horizons.

Monthly levels for March were established based upon the Feb. 28 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the past 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.