Nike (NKE) Trades to All-Time High, More Upside Likely

Nike, Inc. (NKE) shares spiked higher on Sept. 13 and set a slightly higher high at $130.44 on Tuesday, Oct. 6. The stock should continue higher, as this week's risky level is $131.70. Here's how to trade Nike stock:

The daily chart for Nike 

The daily chart for Nike shows the formation of a golden cross on June 22. This occurred when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow.

The stock gapped above its annual and semiannual pivots at $101.65 and $102.04 on June 10. The stock gapped higher on Sept. 23 and set its all-time intraday high of $130.44 on Oct. 6. Nike stock is well above its monthly and quarterly value levels at $107.37 and $108.48, respectively, but is below its weekly risky level at $131.70.

The weekly chart for Nike  

The weekly chart for Nike is positive but overbought, with the stock above its five-week modified moving average of $118.05. The stock is well above its 200-week simple moving average, or reversion to the mean, at $77.10. This key moving average was last tested as a buying opportunity during the week of March 27, when the average was $70.52.

The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 86.99 this week, up from 85.40 on Oct. 2. If this level rises above 90.00, the stock would be in an "inflating parabolic bubble" formation.

Trading strategy: Buy Nike stock on weakness to its quarterly and monthly value levels at $108.48 and $107.37, respectively. Reduce holdings on strength to the weekly risky level at $131.70, which is above the charts.  

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics, and the annual level remains on the charts. The semiannual level was based upon the input of the June 30 close. The fourth quarter 2020 level was established based upon the Sept. 30 close, and the monthly level for October was also based upon the Sept. 30 close.

New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.