Is It Time to Buy Nike Stock?

Nike, Inc. (NKE) stock is trading above $100 for the first time since January, bouncing with the broad market after the coronavirus swoon. It is currently the sixth strongest component of the Dow Jones Industrial Average but gets less attention than market leaders Apple Inc. (AAPL) and Microsoft Corporation (MSFT) because sports apparel and footwear is an old-school industry in a big-tech world. Even so, sidelined investors are asking if it's a good time to buy Nike stock in anticipation of new all-time highs. 

This American icon has been gaining ground for the past 20 years but lost its market leadership title in 2016 after the rally stalled in the upper $60s. Patient shareholders had to wait more than two years for the stock to hit a new high, but the interlude shook off years of overbought readings, allowing a new crop of buyers into low-risk positions. The stock has nearly doubled in value since that time, but there's no reason to suspect that it's topping out.

Even so, price action hasn't touched the 50-week or 200-day exponential moving average (EMA) since August 2019, raising the odds for an intermediate correction. In addition, resistance at the psychological $100 level can take months or years to overcome because it's a popular place for shareholders to take profits and look for new opportunities. Although there's some evidence of this rotation, it hasn't been enough to offset the bullish technical outlook.

NKE Long-Term Chart (1992 – 2020)

A multi-year uptrend stalled at a split-adjusted $2.82 in 1993, yielding a steep correction, followed by a breakout to new highs in 1995. That rally impulse stalled at $9.55 in 1997, marking resistance into a 2004 breakout that attracted modest buying interest. The uptrend ended in the upper teens in the second quarter of 2008, giving way to a steep decline that accelerated during the economic collapse.

The sell-off ended within 12 cents of 2006 support at $9.44 in March 2009, giving way to a recovery wave that completed a round trip into the 2008 high in 2010. An immediate breakout caught fire, posting impressive gains that lifted the stock into market leadership through the first half of the decade. The good times ended in the upper $60s in December 2015, when the uptrend eased into a broad symmetrical triangle pattern that persisted into a December 2017 breakout.

The uptick stalled in the mid-$80s in September 2018, but the stock held up better than its peers during the fourth quarter downdraft, posting decent annual returns. It bounced back to the 2018 high in March 2019 and stalled once again, failing April and June breakout attempts. Committed bulls finally took control in September, establishing a rally wave that added about 15 points into January's all-time high at $105.62.

NKE Short-Term Outlook

The monthly stochastic oscillator hasn't entered the oversold zone since January 2017, highlighting impressive relative strength. It has carved a complex pattern since that time, with a series of higher lows and three trips into the overbought zone. The stochastic oscillator is currently situated in a beneficial position for bulls, just under the 80% line, with a thrust above that level often booking the strongest gains of a larger-scale rally wave.

However, price action since 2017 has also carved a rising channel, with the rally into 2020 reversing at channel resistance. The uptick could crawl along this line for a while, opening the door to $110 or so, but an intermediate downturn into channel support near $90 is more likely. Given this adverse reward-to-risk profile, the majority of sidelined investors should probably hold their fire for now and wait for that correction.

The Bottom Line

Nike stock is firmly established in a major uptrend, but short-term upside potential appears limited, suggesting that most investors should wait for a pullback.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.