Investors looking to reduce holdings should do so now ahead of earnings Thursday afternoon, as the charts suggest greater downside risks than upside potential. On Thursday, if the stock closes below $53.10 the key level to hold on weakness is $50.00. If the stock is above $53.54, there will be higher prices at which to reduce holdings, on a positive reaction to earnings..
Nike set its all-time intraday high of $68.19 on Dec. 23, 2015 on a positive reaction to earnings. The stock declined by 28.1% from this high to as low as $49.01 on Nov. 2, 2016. The daily chart below shows the Fibonacci Retracement levels of this decline.
The weekly chart for Nike has been negative since the end of March, when the stock closed below its five-week modified moving average with its 12x3x3 weekly slow stochastic reading falling below the overbought threshold of 80.00. The stochastic reading is shown in red across the base of the weekly chart and this measure of momentum is on a scale of 00.00 to 100.00. A reading above 80.00 is overbought and a reading below 20.00 is oversold.
Nike is expected to earn 49 cents a share when it reports quarterly earnings for its quarter ended in May, after the closing bell on June 29. A positive reaction to earnings should cause the stock the jump above its 23.6% retracement level of $53.54. A negative reaction to earnings should cause the stock to fall below its 200-week simple moving average of $50.00. This is important as this moving average is considered the "reversion to the mean" and the stock has been above this milestone since the week of July 31, 2009 when the average was $13.38.
The Daily Chart for Nike
Courtesy of MetaStock Xenith
The daily chart for Nike shows the Fibonacci Retracement levels of the 28.1% bear market decline from the Dec 23, 2015 high of $68.19 to the Nov. 2 low of $49.01. The 23.6%, 38.2% and 50% retracements are $53.54, $56.34 and $58.61, respectively. The stock closed above the 23.6% retracement on Feb. 8, then above its 38.2% retracement on Feb. 21, before it failed at its 50% retracement on March 21. The catalyst for the price gap lower on March 22 was another negative reaction to earnings. The problem this week is that Monday's high of $53.57 was a failed test of the 23.6% retracement. The stock needs a positive reaction to earnings to gap above the 23.6% retracement of $53.54.
The Weekly Chart for Nike
Courtesy of MetaStock Xenith
The weekly chart for Nike shifts to positive if the stock ends the week above its five-week modified moving average (in red) at $53.10. The 200-week simple moving average or "reversion to the mean" (in green) is $50.00. The 12x3x3 weekly slow stochastic reading is projected to rise to 24.26 this week up from 23.88 on June 23.
Current Strategy: Buy weakness to my weekly value level of $50.31. My monthly pivot is $53.63. Reduce holdings on strength to my annual risky level is $62.65.
Nike shares fell 0.1% to $53.33 on Thursday morning.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.