Dow component Nike, Inc. (NKE) has turned the corner after testing deep corrective lows for more than a year and could now break out above the 2015 high, entering a healthy trend advance. In turn, the stock could become a top 2018 performer, leading the upside as it did in the first half of the decade. Fortunately for bulls, current technicals indicate that there is plenty of time to get on board before the rally train leaves the station.
The stock posted solid gains last week after Foot Locker, Inc. (FL) surpassed Wall Street expectations, beating third quarter EPS and revenue estimates. Shoe Carnival, Inc. (SCVL) added to the bullish fervor, also beating estimates while raising fiscal year 2018 guidance. Those stocks booked double-digit percentage gains following the news, underpinning Nike's surge to a three-month high.
The rally has reached base resistance going back to April 2016, with a breakout into the lower $60s set to issue an intermediate buying signal ahead of a critical test at the 2015 high in the upper $60s. The late-year calendar is unlikely to complete this bullish scenario, but January buying pressure could do the trick, with market players taking profits on 2017 winners and hunting for new long-term opportunities. (See also: Why Netflix, Nike and Starbucks Are Breaking Out.)
NKE Long-Term Chart (1992 – 2017)
A multi-year uptrend ended at a split-adjusted $2.82 in 1992, giving way to a two-year correction that reached $1.35. It broke out to a new high in 1995, entering a healthy advance that stalled at $9.55 two years later. That marked the top, ahead of narrow range-bound action that persisted into a 2004 breakout. The subsequent uptick posted modest gains into the 2008 high at $17.65, ahead of a steep decline that reached a two-year low in the single digits.
The stock bounced back to the 2008 high in 2010 and took off in a historic uptrend that generated a long period of market leadership. It nearly quadrupled in price into the December 2015 all-time high at $68.19 and rolled over in a volatile correction that posted lower lows into the November 2016 low at $49.01. Three tests at that level into October 2017 have filled out a broad rectangular basing pattern that could now yield a fresh bull market wave.
The monthly stochastics oscillator has drawn a complex pattern since the second quarter of 2016, descending into a deeply oversold technical reading, while the subsequent buy cycle failed to reach the overbought line. It drifted lower into October 2017 and then turned higher once again, carving a higher low and double bottom that could presage strong buying pressure in the coming months. (For more, see: Nike Gives Upbeat Forecast at Investor Conference, Shares Rise.)
NKE Short-Term Chart (2015 – 2017)
A Fibonacci grid stretched across the decline between December 2015 and November 2016 places rectangular base resistance across the .618 retracement level, highlighting the importance of a breakout into the low $60s. However, that rally could take time to unfold because last week's gap between $57 and $58.50 may act as a magnetic target into early 2018. Observant market players will be watching for a gap fill because it could precede a base breakout.
On-balance volume (OBV) topped out more than four months ahead of price in 2015 and entered a persistent distribution wave that posted lower highs into August 2017. It has just broken the trendline formed by those highs, setting off bullish signals that denote aggressive institutional and retail accumulation. This bodes well for price development into 2018, but it will take intense and persistent buying pressure for the indicator to reach the prior high. (See also: Nike Facing 'Challenging Dynamics': Goldman Sachs.)
The Bottom Line
Nike stock has turned the corner after nearly dropping into a long-term downtrend and could now lift into the $60s, initiating a long-awaited test at the 2015 bull market high. As a result, 2018 could produce impressive gains and lift the beaten-down Dow component into market leadership. (For additional reading, check out: How Nike Makes Its Money.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>