The biggest names in sports are endorsed by Nike (NKE) - Get Report , and this has helped to fuel a parabolic rise in the company's stock from the 2009 low to the 2015 high. Investors and consumers alike are now in the grip of the company's motto -- Just do it! -- and are buying. But maybe they shouldn't.
The problem with parabolic rallies is that without exception they crash back to the origin of the parabolic portion of the pattern. Sometimes they go even lower. In this case, the origin is the price zone from 2012, which is about $23.50, give or take $3.50. Crazy? Let's see how our decision support engine (DSE) has done with Nike in the past year.
Back on Christmas Eve of last year, the DSE warned, and we posted the details in these pages, that Nike was about to move sharply lower from its $130 level (which is now the $65 level, accounting for a stock split). Two months later, Nike was trading at $53, 20% lower. After several months of lower highs and lower lows (the definition of a downtrend), shares finally found a trading low near $51 in the final days of June. Our DSE then came out with a warning to cease selling actions and use buying actions (to cover shorts and/or go long) for a bounce of about 20%. Again, we posted that forecast in these pages. By late August, shares had risen to $60 from $51, a 17% bounce. So, clearly, without computing the odds of two random bull's-eyes in the same stock, in opposite directions, within six months, the DSE has led our members, and readers of these pages, to productive entries and exits.
This is the updated monthly bar chart, with some minor changes to how the colored zones are laid out. First, the decline from our December analysis, which captured the highs of historical proportion, is not complete. Second, the bounce forecast in our July analysis has happened. Third, the next decline is well underway, with at least 10% more to go, perhaps 30%, and possibly 50%. Here's how you trade it.
If any near-term bounce appears and takes the stock's price toward $60 +/-$3, the DSE warns us to exit "long and wrong" positions that are getting worse by the day. The DSE also tells us to use a break of $51 to exit, too, because an immediate flush toward $45 is the least bearish outcome.
These analysis techniques, and many other intricacies not able to be shown in this venue, are what we will be intensely focusing on at our Dallas (Texas) weekend workshop on Oct. 15-17. This will be our last in-person training of the year, and seats are limited to the first dozen who want to attend. So, use this link to find out more, and please contact us with any questions, as the early registration discount expires on Sept. 30th (this Friday).
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned but held shares of Direxion Daily Small Cap Bear 3X Shares (TZA), an exchange-traded fund that seeks performance that is three times the inverse of the Russell 2000 index.