Is it time to buy Nike shares?


Shares of Nike, Inc. (NKE) are trading above $100 for the first time since January, rebounding with the wider market after the coronavirus slump. It’s currently the sixth largest component of the Dow Jones Industrial Average, but it’s getting less attention than market leaders Apple Inc. (AAPL) and Microsoft Corporation (MSFT) because athletic apparel and footwear are an old-school industry in a high-tech world. Even so, sidelined investors are wondering if now is a good time to buy Nike shares in anticipation of new all-time highs.

This American icon has been gaining traction over the past 20 years, but lost its title as market leader in 2016 after the rally stalled in the upper $60s. Patient shareholders had to wait more than two years for the stock to hit a new high, but the interlude shook off years of overbought readings, allowing a new generation of buyers to access low-risk positions. The stock has nearly doubled in value since then, but there’s no reason to suspect it’s climbing.

Even so, price action has not touched the 50-week or 200-day exponential moving average (EMA) since August 2019, increasing the chances of an interim correction. Additionally, resistance at the psychological $100 level may take months or years to overcome as it is a popular place for shareholders to take profits and look for new opportunities. While there was evidence of this rotation, it was not enough to offset the bullish technical outlook.

NKE Long Term Chart (1992 – 2020)

A multi-year uptrend ended at the breakdown-adjusted $2.82 in 1993, leading to a sharp correction, followed by a breakout to new highs in 1995. This rallying impulse stopped at 9, $55 in 1997, marking resistance to a 2004 breakout that attracted modest buying interest. . The uptrend ended in the upper teens in the second quarter of 2008, giving way to a sharp decline that accelerated during the economic collapse.

The sell-off ended within 12 cents of the 2006 support at $9.44 in March 2009, giving way to a wave of recovery that made a round trip to the 2008 high in 2010. An immediate breakout was caught fire, posting impressive gains that propelled the stock into the market. leadership during the first half of the decade. The good times ended in the upper $60s in December 2015, when the uptrend eased into a broad symmetrical triangular pattern that persisted until a breakout in December 2017.

The rise stalled in the mid-$80s in September 2018, but the stock held up better than its peers in the fourth quarter, posting decent annual returns. It rebounded to the 2018 high in March 2019 and stalled again, failing breakout attempts in April and June. Committed bulls finally took control in September, establishing a rally wave that added about 15 points to January’s all-time high at $105.62.

NKE short-term outlook

The monthly stochastic oscillator hasn’t entered the oversold zone since January 2017, pointing to impressive relative strength. It has carved a complex pattern since then, with a series of higher lows and three trips into the overbought zone. The Stochastic Oscillator is currently located in a beneficial position for bulls, just below the 80% line, with a push above this level often seeing the strongest gains from a larger rally wave. ladder.

However, the price action since 2017 has also carved out an ascending channel, with the rally in 2020 reversing at channel resistance. The upside could crawl along this line for a while, opening the door for around $110, but an intermediate slowdown of channel support near $90 is more likely. Given this unfavorable risk-return profile, the majority of sidelined investors should probably hold their fire for now and wait for this correction.

The essential

Nike stock is firmly established in a major uptrend, but near-term upside potential appears limited, suggesting most investors should wait for a pullback.

Disclosure: The author held no position in the aforementioned titles at the time of publication.


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