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Nike Slips - Here’s When to Buy the Dip

Nike is slipping despite strong fiscal second-quarter results. Here's how to trade the stock from here.

Nike  (NKE) - Get Nike Inc. Report shares were under pressure Friday, falling about 2% after the company reported its fiscal second-quarter results.

Long story short, it was a smash. But Wall Street’s not viewing it that way, instead selling after Nike's recent rally to all-time highs and getting hung up on a few minor details.

However, the latter is what happens when you get the former. That means when a stock comes into earnings red hot and on its highs its earnings report has to be near perfect for shares to continue rising

That makes Nike an obvious pick for Real Money’s Stock of the Day.

Friday's decline comes after Nike reported earnings of 70 cents a share, well above consensus estimates for 58 cents and even above the Wall Street-high estimate. Sales of $10.33 billion grew 10.2% year over year and breezed past expectations by $240 million.

However, sales in North America were a touch light - $3.98 billion vs. $4 billion consensus - and gross margins came in at 44% vs. consensus expectations of 44.1%.

Given the strong report and very minor misses, we’re looking to buy the dip in Nike stock. Let’s look at the charts.

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Trading Nike Stock

Daily chart of Nike stock.

Daily chart of Nike stock.

The pullback in Nike isn’t all that surprising, and in fact it’s exactly what we outlined in our pre-earnings outlook. The action is similar to that of Lululemon Athletica  (LULU) - Get lululemon athletica inc. Report, which sold off slightly on strong results earlier this month. Now, Lululemon stock is recovering and that’s what we’ll be looking for in Nike as well.

Nike took a quick dip to start December. Bulls responded with three straight gap-up rallies, sending shares higher by more than 6% from their three-day low. More than that though, it led to a notable breakout over the $96.50 level.

Shown on the chart above via a blue box clearing this level allowed Nike shares to rally above $100 ahead of earnings. Now pulling back, bulls need to see this prior resistance level hold as support - should the stock decline that far.

That would be similar action to what we saw in October and November, as former resistance at $89 acted as major support. 

Near $96.50, Nike also has the rising 20-day moving average. If that mark is support, it may prevent Nike from the “ideal dip” down to the $96 to $97 area.

If both marks fail as support, look for uptrend support (blue line) and the 50-day moving average to buoy the name. Below that, and $89 and 200-day moving average are on watch.

The bottom line: Nike’s pullback is healthy price action. Given the strong quarterly numbers, bulls should be looking to buy a pullback, with the first opportunity coming at the 20-day moving average and the $96 to $97 area.