Dow component Nike, Inc. (NKE) shares surged to an all-time high on Monday, rallying above resistance at the December 2015 high. Speculation about March 22 earnings could add to gains between now and then, but the stock has a tendency to shake out buyers after the news, forcing market players to choose their entry prices wisely. Even so, the stars are aligning for a historic breakout that could lift the apparel giant into Dow leadership for the first time since 2014.

The company beat fiscal second quarter EPS and revenue estimates in December's report but fell more than four points after the news, signaling caution ahead of the March confessional. North American sales growth declined 5% in the prior quarter, but impressive Asian and Latin American metrics made up the shortfall and should keep growth on the fast track throughout 2018. (See also: Inside Billionaire Bill Ackman's $365 Million Nike Investment: 13F.)

NKE Long-Term Chart (1990 – 2018)

A multi-year uptrend ended out at a split-adjusted $2.82 in 1992, yielding a deep correction that found support at $1.35 in the fourth quarter of 1993. The stock turned sharply higher into the second half of the decade, reaching $9.55 in 1997 and pulling back in a rounded pattern that posted a deep low at $3.22 at the start of the new millennium. Nike shares traded in a narrow trading range during the internet bubble bear market, more than doubling in price but failing to reach the prior decade's high.

The stock completed the round trip in 2004 and broke out, but momentum failed to develop, generating sideways action into 2006, when it took off in a trend advance. It topped out in the upper teens in 2008 and held up relatively well during the economic collapse, posting a two-year low at $9.56 in March 2009. A quick bounce to a new high in 2010 set the stage for an impressive uptrend that posted returns in excess of 300% into December 2015, when the stock topped out near $70.

Aggressive sellers took control into the second half of 2016, carving a volatile decline that held above the August 2015 low at $47.25. The March 2017 swing high completed the outline of a symmetrical triangle, ahead of a December breakout that has generated an impressive surge into 2015 resistance. This buying power has registered on relative strength indicators, lifting the monthly stochastics oscillator into the first overbought technical reading in more than two years. (For more, see: Nike Declares It Is a Growth Company.)

NKE Short-Term Chart (2016 – 2018)

The correction into 2017 generated four failed attempts to rally above $60, establishing a line in the sand that broke in December 2017. The stock rallied quickly into 2015 resistance and dropped into a small-scale inverse head and shoulders pattern ahead of this week's buying surge. This classic pattern should resist selling pressure, but a pullback could trade as low as $63 without undermining the bullish long-term outlook. 

On-balance volume (OBV) ended a three-year accumulation phase at the end of 2015 and rolled into a distribution phase that continued into October 2017. Buying pressure since that time has failed to reach the prior high and is now flashing a bearish divergence, signaling weak institutional sponsorship. This deficit may increase March volatility and shake out weak hands while adding a cautious note to the upcoming earnings report and its sell-the-news tendency.

Price action since December has carved a rising channel that is easier to visualize on a logarithmic scale chart than an arithmetic scale chart. This pattern establishes short-term support at $63 and short-term resistance at $72. Informed market players will be watching those levels into earnings to gauge buying power and to look for buying opportunities. Conversely, a decline through channel support would have bearish implications, possibly triggering a long-term double top. (See also: Why Netflix, Nike and Starbucks Are Breaking Out.)

The Bottom Line

Nike rallied to an all-time high this week and could gain additional ground ahead of a late March earnings release that may test the resolve of newly minted shareholders. (For additional reading, check out: 12 Stocks That Can Thrive as Economy Gains Speed: Goldman.)

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