Chart of the Day: Nike Earnings Could Trigger New Rally, Despite Recent Dip
Investing.com | Mar 22, 2019 02:01
Nike (NYSE:NKE) is scheduled to release Q3 earnings today after market close, with analysts expecting EPS of $0.64 on revenue of $9.58 billion. The athletic shoe and clothing powerhouse has beaten expectations – sometimes drastically – in every single report over the past 22 quarters since September 2013.
Two major stories today that could weigh on the results are the Fed’s forecast downgrade and President Donald Trump’s concession of a lingering trade dispute; these issues may offset the export boost due to lower rates leading to a weaker dollar. One wholly positive point is that Adidas (OTC:ADDYY), the shoemaker’s competitor, is experiencing a supply chain shortage that is expected to hit its growth in the first half of the year.
With a complex and conflicting fundamental picture, we turn to the supply-demand balance for more clarity.
As opposed to the broad market, Nike is in an unequivocal bull market after posting a record close of $87.84 on March 18 and an all-time high of $88.59 on March 19. The decline of the last two days leaves the price, which closed yesterday at $86.69, still above the previous peak of Sep. 21.
While the RSI provides a negative divergence with momentum, suggesting that prices will follow lower, the 50 DMA crossed above the 200 DMA, as the price reached new heights, triggering a golden cross, the most famous technical buy signal. The RSI divergence may be tolerable from a risk perspective, considering it remains above a major support, the November-December congestion below $80.
Though we remain bearish on the medium-term trend of the overall market, even if begrudging the S&P 500 Index rising above its October peak, we are bullish about Nike. We should note, however, that a general downturn is likely to drag on Nike as well.
h2 Trading Strategies/h2Conservative traders should stay clear until the RSI turns around, with an upside breakout of its descending channel.
Moderate traders may enter a long position, after the earnings release rally pulls back in a correction.
Aggressive traders may risk a long position before the release, counting on the statistical bullish outlook after yesterday’s selloff remained above the September peak, demonstrating continuing demand.
Trade Sample
- Entry: $87
- Stop-Loss: $84, March low
- Risk: $3
- Target: $96
- Reward: $9
- Risk-Reward-Ratio: 1:3
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