The biggest victim of Foot Locker Inc.'s (FL) selloff last week? It wasn't Foot Locker itself.
Iinstead, the fallout is spreading to a much bigger name...Nike Inc. (NKE) . It is having a couple of awful trading sessions fueled by a miss from the firm's biggest customer, Foot Locker. Now, investors had better pay attention to what's happening with the world's biggest athletic apparel stock.
Nike has shed about 7% of its market value in the sessions since Foot Locker reported its abysmal second-quarter earnings results on Friday. That selling isn't just an industry peer sympathy move. Foot Locker is Nike's biggest customer by a substantial margin, accounting for more than 8% of total revenues in the most recent quarter.
(The relationship is even more substantial for Foot Locker, which counted Nike products as more than half of its cost of goods sold.)
In total, the selling amounts to approximately $6.4 billion in vanishing market capitalization for Nike shareholders, more than Foot Locker's entire market value.
Problem is, Nike shares could still have further to fall.
To figure out how to trade Nike from here, we're turning to the charts for a technical look:
In the near term, Nike still has room left to fall before it finds any semblance of support -- the next meaningful support level is down at $52. That's the bad news.
The good news is that, in the much longer term, Nike is still hanging onto a primary uptrend. That means that if Nike does retrace all the way back to $52, investors could be looking at the fourth major buying opportunity in the last year.
You don't need to be an expert technical trader to figure out what's happening in shares of Nike right now - the price setup in shares is about as basic as they get. Nike has been moving higher in a well-defined long-term uptrend since bottoming back in November. Simply put every test of the bottom of the uptrending channel in NKE has provided a low-risk, high-reward opportunity to pull the trigger on shares.
That means, if Nike does continue to correct down to $52, shares flip from a high-probability sell to a high-probability buy.
Risk management remains key for the Nike trade, particularly because shares have been correcting so hard in recent sessions. If Nike materially violates its prior lows at $51 set back in June, then the uptrend is over and you don't want to own it anymore. In the meantime, exercise some patience if you're looking for a buying opportunity in Nike -- shares could continue trading lower before they start to look attractive again.
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