Thinking of Buying Nike? Here's How to Time Your Trade

Shares of Nike (NKE) were briefly in a bear market after dropping over 20% from their 2015 high to their low in June this year. That decline penetrated a long-term uptrend line going back to 2012, but it found support at the 50% Fibonacci retracement level of the 2009 low and 2015 high. The bounce that followed took the stock price back up to a downtrend line drawn off the declining pullback highs, which initially acted as resistance, but this time the 38% retracement level supplied pullback support.

A second bounce this month has penetrated the downtrend line and may have negated the bearish price action that began last year and reestablished the longer-term bull trend. 

The technical indicators on the weekly timeframe support the idea that the stock has gone through a recovery process, repairing what could have been a severely broken chart. The relative strength index has crossed above its center line and moving average convergence/divergence has made a bullish crossover, signs of positive price momentum. The vortex indicator, which is a combination of oscillators deigned to identify early shifts in trend, has made a bullish crossover. Chaikin money moved into positive territory this month, and the money flow index, a volume-weighted relative strength measure, is above its 21-period average and crossing over its center line. This is confirmation of the price action by an improving money flow.

in buying pressure.

On the daily chart, the recent recovery process formed a cup and handle bottom with rim line resistance in the $58.75 area. The strong move off the 50-day moving average this month, which formed the handle part of the pattern and briefly penetrated the rim line, was followed by a slight pullback this week. While moving average convergence/divergence is still tracking higher and Chaikin money flow is in positive territory, the stochastic oscillator and the money flow index reflect short-term overbought conditions. The rim line is the first line of any downside defense, and directly below that is the rising 50-day moving average. Consolidation around either one of those levels and another bounce move similar to those seen in the past would be a good long entry point using a trailing percentage stop.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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