Dow component Nike, Inc. (NKE) reports earnings after Thursday's closing bell, with Wall Street analysts expecting a paltry profit of $0.09 per share on $7.43 billion in fourth quarter 2020 revenue. The sports apparel giant beat top- and bottom-line third quarter estimates in March, despite fallout from the pandemic in China and the United States. The stock took off in a strong recovery wave after the release, reaching within one point of January's bull market high earlier this month.

A wave of upgrades followed the March confessional, with Pivotal Research, JPMorgan, Wells Fargo, BTIG Research, and Telsey Advisory providing bullish commentary. Nike updated the COVID-19 impact in May, advising that reopenings were proceeding on schedule and that new member acquisition was accelerating. The company also confirmed that nearly all stores in "greater" China and South Korea had reopened.

Nike stock has lifted into the sixth slot in Dow component performance, just below big guns The Home Depot, Inc. (HD) and Visa Inc. (V). High brand recognition and sophisticated digital sales channels have overcome shutdown losses to a great degree, setting the stage for higher prices into 2021. Better yet, Nike is situated in a defensive sector (apparel and footwear) that should outperform during periods of economic contraction.

NKE Long-Term Chart (1990 – 2020)

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

A multi-year uptrend paused in 1992, yielding a three-year trading range, followed by a breakout that posted impressive gains into the 1997 top at a split-adjusted $9.55. That marked the highest high for the next six years, ahead of narrow range-bound action between that resistance level and support near $3.25. A 2004 breakout developed little upside until a 2007 rally wave stalled in the upper teens in June 2008.

Nike stock held up well during the economic collapse, in line with its counter-cyclical reputation, underpinning a 2010 breakout that lifted the company into market leadership. Happy shareholders booked excellent returns into the end of 2015, when buying pressure dried up in the upper $60s, giving way to a triangular correction that limited the upside until a December 2017 breakout. The stock traded well through 2018 despite trade war tensions and continued to post new highs into January 2020's all-time high at $105.62.

COVID-19 news hit Nike's price action earlier than most American equities due to the company's extensive operations in Southeast Asia. However, the bottom dropped out at about the same time in February as it did for other issues, triggering a 45-point slide to a 27-month low at $60. The subsequent bounce recovered all but one point into June 5, when the stock reversed into a pullback that is still in force more than two weeks later.

NKE Short-Term Chart (2018 – 2020)

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

The rally mounted the .786 Fibonacci selloff retracement level in May and has now returned to that trading floor, which marks the last harmonic barrier prior to a test at the first quarter high. The 50-day exponential moving average (EMA) is lifting into narrow alignment, raising odds that dip buyers will reload positions at or above $95. Relative strength cycles are cooperating with the bullish effort, with the stochastic oscillator now engaged in a long-term buy cycle.

The on-balance volume (OBV) accumulation-distribution indicator entered an accumulation phase after the 2018 selloff, topping out in October 2019. It fell to an 11-month low in March 2020 and charged back in a buying spree, underpinned by short covering and bottom fishing, lifting to a new high in May. This bullish divergence bodes well for higher prices in coming months, with this week's earnings report acting as a potential catalyst.

The Bottom Line

Nike stock is hovering just below January's bull market and all-time high, setting the stage for a potential breakout.

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