The pandemic has hit the global reset button on many aspects of our lives, and particularly on Wall Street. For this reason, I now refer to contention levels when discussing investments. Today I’m going to do it for Nike (NYSE:NKE) stock to assess the possibility of an entry point.
But first we must recognize the external risks that are currently present. On the one hand, investors are worried about the Federal Reserve’s rate hike cycle. They have already announced a hike coming next week and an end to the narrowing. But it is the frequency of subsequent action that worries traders. Experts are already expecting one per month for the rest of the year. I disagree, but the threat is there.
More recently, events in Ukraine have taken center stage, and for good reason. The world is about to seriously escalate a war situation. Efforts to defuse things haven’t yielded tangible results, so things could escalate quickly. My guess is that they will eventually come to some sort of compromise. It will take time, so it is unwise to position yourself in NKE shares.
The last time I suggested an entry into NKE stock was one weekly tick away from its March 2020 low. If you bought it at its low and sold it at its November 2021 high , you had a return of nearly 200%. So far, NKE has lost 30% of its value from its high, but it’s still not a clear bottom.
Basically, management has earned all the praise it needs from investors. At 58, the company has overcome many challenges internal and external. It even managed to capitalize on crisis situations. Even the challenges of the pandemic haven’t slowed him down.
Nike has increased its revenue by 53% since 2019, with a net profit of $6.2 billion. In doing so, they generate $6.7 billion in cash from their operations. This will help them ride out the cycle of rising rates we are facing. In addition, the valuation will not pose a problem because it is reasonable. Although the price/earnings ratio of almost 30 is not cheap, it is also not a reason to sell it. Overall, a price-to-sale ratio of 4.9 suggests it’s a bit cheaper than Apple (NASDAQ:AAPL).
NKE Stock has support but tricky
This brings us back to the price action of NKE shares as a tiebreaker. On the one hand, I like that it falls into the October 2020 support levels. However, I still fear that it is still 14% above the 2020 neckline. Remember earlier, I stated that I was using it as a benchmark due to its binary nature.
For instance, Meta (NASDAQ:Facebook) netflix (NASDAQ:NFLX) and PayPal (NASDAQ:PYPL) have already entered their pandemic ranges. It leaves me wondering if Nike will do the same. Over the next few weeks, it should follow the general direction of the market.
More immediately, investors can use the lower floor from March 8 as a stop loss level. Short-term internal technical signs suggest support will hold. But since we are dealing with so many serious headlines, I would leave room for doubt. I can easily accomplish this easily by intentionally lowering my level of belief. If a bounce occurs, I also expect sellers to hide between $136 and $145 per share. Management will have the opportunity to help the stock.
Later this month, Nike will release its earnings, but judging by the DocuSign (NASDAQ:DOCUMENT) reaction last night the bears can’t be done. This month, sellers have all the momentum they need, so buyers are at a disadvantage. Therefore, Nike management had better tell a great story to capture the imagination of investors.
If I’m already long in NKE shares, I should resist adding any in earnings. The short-term reaction to these is binary and has little to do with the quality of the results. This is not an opinion but a fact, which you can verify yourself. Their last four events were two up and two down. If you examine the results of each, you will find all four of them outstanding.
At the date of publication, Nicolas Chahine had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.