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Stocks, Trading  | March 20, 2019

Dow component Nike, Inc. (NKE) is trading near an all-time high in the upper $80s ahead of Thursday's post-market earnings release, when the company is expected to report fiscal third quarter earnings per share of $0.64 on revenue of $9.59 billion. The stock sold off and bottomed out at an eight-month low after the footwear and apparel giant beat second quarter estimates in December, and it has rallied more than 30% since that time.

Analysts have lined up squarely on the bull side ahead of this week's confessional, building a consensus that might unsettle market contrarians. JPMorgan Chase and Needham have raised their price targets this week, while boutique form Pivotal Research expects a solid quarter and higher prices. It has also been a good month so far for footwear earnings, with Foot Locker, Inc. (FL) lifting to a 52-week high while foreign competitor Adidas AG (ADS.DE) recently posted a six-month high. 

NKE Long-Term Chart (1993 – 2019)

Long-term technical chart showing the share price performance of Nike, Inc. (NKE)

A multi-year uptrend topped out at a split-adjusted $2.82 in the fourth quarter of 1992, giving way to a decline that found support at $1.35 in 1994. The subsequent uptick caught fire in the middle of the decade, lifting the stock to $9.55 in 1997, which marked the highest high for the next seven years. It then eased into a complex correction, posting a series of lower lows before building a basing pattern above $3.00 at the turn of the millennium.

A 2004 breakout failed to attract buying interest, yielding narrow sideways action on top of new support into a 2006 rally wave that ended in the upper teens in 2008. Aggressive bears took control during the economic collapse, but the stock held up relatively well, posting a two-year low at $9.56 in March 2009. That print marked a historic buying opportunity, ahead of a healthy recovery wave that reached a new high in 2010.

The stock emerged as a market leader in the first half of this decade, reaching the $60s in the second half of 2015. Bears took control at that level, initiating a tough period marked by volatile whipsaws that persisted into the second half of 2017. Price action carved a broad symmetrical triangle during this period, yielding a December 2017 breakout that signaled a fresh round of healthy gains.

The rally ended in September 2018 in the mid-$80s, giving way to a pullback, followed by a bounce that completed a 100% retracement in February 2019. It broke out to a new high about two weeks ago, but mixed action at support has failed to confirm the new uptrend. The monthly stochastics oscillator flipped to the buy side in January after failing to reach the oversold level, highlighting unusual strength.

NKE Short-Term Chart (2018 – 2019)

Short-term technical chart showing the share price performance of Nike, Inc. (NKE)

Nike stock could sell off after Thursday's earnings report despite the seemingly bulletproof price action. The rally of 20-plus points off the December low carved no pullbacks between the low $70s and low $80s, adding to shareholder complacency while leaving behind unfilled gaps at $79 and $83. In addition, the short-term pattern hasn't posted a higher low, increasing instability that could trigger a multi-week reversal and retracement.

The on-balance volume (OBV) accumulation-distribution indicator also warns of trouble, failing to break out with price in March. In turn, this generates a bearish divergence that predicts a buy side volume inflow or a sell-off that brings price action in sync with the indicator. Ominously, the weekly stochastics oscillator has just entered a confirmed sell cycle, predicting that bears will ultimately prevail in this conflict.

The Bottom Line

Nike heads into Thursday's post-market report with broad-based analyst support, but hidden technical headwinds could trigger a reversal and decline that fills gaps into the upper $70s.

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