Nike, Inc. (NKE) reported better-than-expected earnings on Dec. 19, and the stock continues to hit new highs, last at $102.74 on Jan. 7. This strength is approaching the weekly and quarterly risk levels at $105.75 and $108.49, respectively.
The technicals are positive, with a “golden cross” on its daily chart and a positive weekly chart. However, the weekly chart shows the technical warning that I call an “inflating parabolic bubble” formation. Fundamentally, Nike stock isn’t cheap, with a P/E ratio of 35.64 and a meager dividend yield of 0.96%, according to Macrotrends.
The stock closed Tuesday, January 7 at $101.78, up 0.5% so far in 2020. The stock hit its all-time intraday high of $102.74 on January 7. 20, 2018, min $66.53.
Nike’s daily chart
Nike’s daily chart shows the formation of a “golden cross” on February 13, when the 50-day simple moving average crossed above the 200-day simple moving average to indicate that higher prices would follow. When this formation is in play, the strategy is to buy weakness in the 200-day simple moving average. This was doable on May 29, when the average was $80.58, and again on August 2, when the average was $81.30. The bullish “golden cross” followed the stock to its all-time intraday high of $102.74 set on January 7.
The horizontal lines represent the semi-annual value level at $85.94, the monthly value level at $92.44, and the yearly pivot at $101.65. The weekly and quarterly risk levels are above the chart at $105.75 and $108.49, respectively.
Nike’s Weekly Chart
Nike’s weekly chart is positive but overbought, with the stock above its five-week modified moving average of $98.31. The stock is well above its 200-week simple moving average, or “mean reversion,” at $68.73. This key moving average was last tested as a buying opportunity during the week of October 20, 2017, when the average was $51.46.
The weekly slow stochastic reading of 12x3x3 is expected to rise to 91.99 this week from 89.76 on January 3. This reading is not only above the overbought threshold of 80.00, but is now above 90.00, placing the stock in an “inflating parabolic bubble formation.”
Commercial strategy : Buy Nike shares on weakness at monthly and semi-annual value levels at $92.44 and $85.94, respectively, and reduce holdings in strength at weekly and quarterly risk levels at $105.75 and $108.49 $, respectively. The yearly pivot remains a magnet at $101.65.
How to use my Value Levels and Risk Levels: Closing stock prices on December 31, 2019 were input data for my proprietary analyzes and resulted in new monthly, quarterly, semi-annual and annual levels. Each uses the last nine fences in these time horizons. New weekly levels are calculated after the end of each week. New monthly levels occur after the end of each month. New quarterly levels occur at the end of each quarter. Semester levels are updated mid-year. Annual levels are in play all year round.
My theory is that nine years of volatility between closes is enough to assume that all possible bullish or bearish events for the stock are priced in. To capture share price volatility, investors should buy on weakness at a value level and reduce holdings on strength at a risky level. A pivot is a level of value or a level of risk that has been breached within its time horizon. Pivots act like magnets that have a high probability of being retested before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice to use weekly slow stochastic readings of 12x3x3 was based on backtesting numerous methods of reading stock price momentum with the goal of finding the combination that resulted in the fewest false signals. I did this after the stock market crash of 1987, so I’ve been happy with the results for over 30 years.
The Stochastic reading covers the past 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the high and low relative to the closes. These levels are changed for fast play and slow play, and I’ve found slow play to work the best.
The Stochastic reading ranges between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is seen as an “inflating parabolic bubble” formation, which is typically followed by a 10% to 20% decline over the next three to five months. A reading below 10.00 is considered “too cheap to ignore”, which is usually followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in the stocks mentioned and does not plan to initiate any positions in the next 72 hours.