Dow component Nike, Inc. (NKE) reports earnings after Tuesday's closing bell, with Wall Street analysts expecting earnings per share (EPS) of $0.56 on third quarter 2020 revenue of $9.5 billion. The sports and apparel giant saw its shares fall more than 2% after beating estimates on both metrics in the December release, with investors jumping ship due to lower-than-expected gross margins. The stock recovered quickly, lifting to an all-time high in January.
A mid-February sell-off gathered momentum into March, dumping this household icon and former market leader more than 30% before it bounced strongly on Friday. Nike stock is trading flat so far on Monday morning, held down by a pre-earnings downgrade at Pivotal Research Group. The boutique firm cited China disruption due to the COVID-19 pandemic as well as the expected impact in North America and Europe.
Despite high volatility, price action has been holding close to long-term support in the lower $70s, raising speculation about the reaction to Tuesday's report. With the U.S. government spending trillions of dollars to support the economy, bears can't rule out a strongly positive reaction that targets the unfilled Mar. 12 gap between $78 and $84. Progress above that level could be difficult, at least until the pandemic runs its course.
NKE Long-Term Chart (1992 – 2020)
A multi-year uptrend topped out at a split-adjusted $2.82 in 1992, giving way to a steady decline that finally bottomed out in the first quarter of 1994. The subsequent uptick posted a new high one year later, yielding an immediate breakout and final rally wave into the 1997 high at $9.55. That marked the highest high for the next seven years, ahead of a shallow trading range with support just below $4.00.
A 2005 rally made steady progress into the March 2008 high at $17.65, ahead of an orderly correction that bottomed out in March 2009 after relinquishing nearly half of the stock's value. The subsequent recovery wave completed a round trip into the prior high in 2010, yielding a breakout that lifted Nike into market leadership through the first half of the decade. The uptrend ended in the fourth quarter of 2015, easing into a symmetrical triangle that persisted into 2017.
A breakout into 2018 reestablished Nike stock's leadership, carving a string of higher highs and higher lows that ended with the January 2020 all-time high. Price action between 2017 and 2020 carved a rising channel that broke to the downside in March, signaling major technical damage that could take months or years to overcome. Channel resistance has narrowly aligned with the broken 200-day exponential moving average (EMA), limiting upside to $90 or so.
The monthly stochastic oscillator crossed into a sell cycle from the overbought zone in January 2020, predicting at least six to nine months of relative weakness. The indicator is now stretching through the panel's midpoint, indicating that committed bears are controlling the tape while further limiting rally potential. In addition, the stock is now trading below the 50-month exponential moving average (EMA) for the first time since April 2009, raising the odds that the decade-long uptrend has come to an end.
NKE Short-Term Chart (2016 – 2020)
A Fibonacci grid stretched across the 2016 into 2020 uptrend places last week's low at the .786 rally retracement level, which marks a high-odds reversal zone. Meanwhile, the on-balance volume (OBV) accumulation-distribution indicator broke out to a new high in the fourth quarter of 2019 before topping out with price in January. The distribution phase into March has reached horizontal support going back to April 2019, with both elements raising the odds for a buy-the-news reaction after this week's earnings report.
The Bottom Line
Nike stock could rally following this week's earnings report, but short-term upside potential remains limited, with heavy resistance between $80 and $90.
Disclosure: The author held no positions in aforementioned securities at the time of publication.