Is it too late to buy Nike shares?

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The Dow Nike Inc. (NKE) component was a strong performer in 2019, posting a 26% year-to-date return on a climb to an all-time high. However, the stock made little progress in the first two months of the fourth quarter, testing new support after breaking above the five-month resistance at mid-$80. This holding pattern has shifted strong relative strength readings to neutral, raising doubts about the wisdom of buying stocks at these high levels.

Price action settled near the midpoint of a three-month trading range in November, giving way to a silent band that could dictate Nike’s trend well into 2020. This period has roughly coincided with the announcement of the departure of CEO Mark Parker in January 2020, replaced by current CEO and President of ServiceNow Inc. (NOW), John Donahoe. It also aligns with the growing likelihood that no “Phase 1” trade deals will be signed this year, paving the way for tariffs that could undermine profits and margins.

Nike has taken bold steps to disengage from China through new supplier relationships in a bid to reduce exposure if the trade war escalates in the new decade. However, the company’s actions cannot insulate it from a recession that is dampening all manner of retail sales, especially if President Trump follows through on threats to raise tariffs to 25% or more on household items. that are currently on US shelves.

NKE Long Term Chart (1992 – 2019)

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A multi-year uptrend peaked at AP-adjusted $2.82 in 1992, giving way to an intermediate correction that found support at $1.35 in 1994. The subsequent rise hit a new high in the fourth quarter of 1995 and took off like a rocket, peaking at $9.55 in 1997. This marked the highest level for the next seven years, before a downward trend that shed over 60% of the value of Nike in the first quarter of 2000.

The stock charted a triangular pattern in 2004 and broke, but the momentum didn’t build until 2006, when a healthy progression kicked in. It peaked in the upper teens in 2008 and fell sharply during the economic collapse, dropping about 50% in March 2009. The subsequent rebound went back and forth to the previous peak in 2010, paving the way to a historic breakout and rally that posted impressive gains into the 2015 high in the upper $60 range.

It underperformed in the fourth quarter of 2017, carving out a shallow triangle that generated volatile jigsaws and jerks. The bulls regained control in 2018, completing a cup and handle breakout in May. This event sparked a buying frenzy while carving out a growing wedge that is still in play as we navigate the final month of 2019. This pattern has a well-deserved reputation for trapping bulls in a series of shallow rallies, before a major change. fashionable.

NKE Short Term Chart (2017 – 2019)

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The stock broke the March 2019 high of $88 in September and reversed at wedge resistance for the third time in October after posting an all-time high of $96.87. It closed the breakout gap in November and bounced back, stopping at the 0.786 Fibonacci retracement of the three-week slide. This is a common price area for reversals from leading patterns, but the bulls remain in charge for now due to the breakout.

The Global Volume Accumulation-Distribution (OBV) indicator is waving a red flag after breaking above April 2019 resistance and posting a new high with price in October. The November decline triggered a failed breakout, while subsequent volume activity failed to bring the indicator back above the red line. This bearish divergence increases the chances that the price will eventually follow the move, breaking through new support in the upper $80s.

The essential

The Nike bulls are in charge as we head into the end of the year, but mounting technical evidence is warning sidelined investors to keep their powder dry for now.

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

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