Nike Stock Testing January's Bull Market High

Dow component Nike, Inc. (NKE) has completed a V-shaped recovery into January's bull market high and could break out in coming weeks, resuming its long-term uptrend. This price action follows a dramatic breakout by smaller rival Lululemon Athletica Inc. (LULU), highlighting continued demand for sports apparel and other health-related paraphernalia throughout the pandemic shutdown. (See also: Lululemon Stock Overbought and Overloved Ahead of Earnings.)

In mid-May, the company announced that 100% of Nike-owned stores and 95% of partner-owned stores had reopened in China and South Korea, adding to strong digital demand and new member acquisition. Just 5% of U.S. stores were open at that time, but reopenings are now accelerating, reinstating a sense of normalcy that should translate into even higher sales into the end of the second quarter.

Fiscal fourth quarter 2020 earnings that cover March, April, and May will be released on June 25, with the run-up into the confessional adding another bullish catalyst. Analysts expect Nike to report earnings per share (EPS) of $0.17 on revenue of $7.75 billion, which would translate into a major drop from 2019. Few specific metrics about the U.S. impact were disclosed during March earnings or the May update, so investors will have to rely on ratings and speculation to make entry decisions.

NKE Long-Term Chart (1995 – 2020)

The stock broke out above three-year resistance at a split-adjusted $2.82 in 1995 and entered a short-lived uptrend that topped out at $9.55 in 1997. That marked the highest high for the next seven years, giving way to a complex decline that posted lower lows into the first quarter of 2000, when it bottomed out at $3.22. The subsequent uptick completed a round trip into the prior high in 2004, yielding a breakout that failed to gather momentum until 2006.

Steady progress into March 2008 posted a new high at $17.65, giving way to an orderly pullback that accelerated during the fourth quarter economic collapse. Selling pressure finally eased at a three-year low in 2009, yielding a recovery wave that completed a 100% retracement into the prior high in 2010. The stock broke out immediately, lifting Nike into market leadership through the first half of the decade.

The uptrend topped out in the upper $60s in the fourth quarter of 2015 and rolled into a symmetrical triangle that contained price action into a 2018 breakout that reestablished the stock's leadership. That advance printed a healthy string of higher highs and higher lows, culminating in January 2020's all-time high at $105.62. It broke down from a small topping pattern one month later and plunged into mid-March, finally settling at a two-year low.

The bounce into the second quarter unfolded at the same trajectory as the prior decline, reaching within a point of January resistance on Wednesday. That peak could delay upside progress while the stock works off overbought technical readings, perhaps generating a pullback that offers a buying opportunity between $90 and $95. However, given currently strong Dow Jones Industrial Average momentum, it's possible that Nike stock just heads higher from here.

NKE Short-Term Outlook

The monthly stochastic oscillator has carved a complex pattern since May 2019, crossing into a sell cycle that has set off strong buying waves. The latest uptick has almost reached the overbought zone, which has triggered three bearish crossovers in the past 20 months. In turn, this suggests that bulls are controlling the tape for now, but bears could wrest control at any time. That increases risk substantially into the late June earnings release.

Even so, accumulation readings have lifted to new highs, highlighting impressive second quarter buying power that should limit downside pressure in coming weeks. As a result, the V-shaped pattern now marks the greatest risk to upside development because this price action has failed to carve stable trading floors all the way down to $60, making it harder for multi-day downturns to find logical support levels.

The Bottom Line

Nike stock has returned to the bull market high and could break out, but subsequent gains may not be in the cards without an extended consolidation phase.

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