Late March, Nike (NYSE:NKE) stock fell almost 10% around its earnings event. Then, I wrote about going long the stock as it would be a winner for the long term. The stock then rallied 11% from low to high. So the traders among us probably locked in some profits as NKE stock set new all-time highs.
Source: Alessio Jacona via Flickr
So is it time to sell NKE on this weakness? (It’s down another 2% this morning.) No. In fact it is time to reload for another rally similar to the one in April. In March, investors sold Nike stock down for specific reasons. This time NKE is suffering because of the war of words between the American and Chinese politicians.
On Friday, the U.S. imposed new tariffs on Chinese goods and this morning China retaliated. So there will be challenges for Nike, but trade war dangers have been telegraphed for over a year. So by now, I’d bet that NKE management has taken necessary precautions to minimize any possible damage — if there is any possible damage.
This is a giant global company that has been through several crisis situations. Nike continues to dominate, so this skirmish is not going to cause sustained harm to NKE’s profit and loss statement.
Two Fridays ago, the Trump tariff tweet caused a sharp market wide dip that took NKE from $86 to retest $82 per share. As long as this floor holds, it will serve as a strong base for the next rally and therein lies the thesis for today’s opportunity.
Trading NKE Stock
NKE stock will make new highs as markets shrug this tariff war tizzy in the next few weeks.
While there is fear on Wall Street as we can see from the spike in the CBOE Volatility Index, Friday’s price action was bullish. On Friday, the markets shrugged off the new tariffs and the debacle Uber (NYSE:UBER) IPO and rallied from down deep red to green. Clearly the bulls are not dead.
As equities reversed course sharply, NKE stock now looks bullish like. So, today’s write up is to share that upside potential that could carry it to new highs. There will be some resistance at $84.30, $86, and $88.50 per share.
The NKE stock fans are strong. They flexed their muscles to close it green on the day we added tariffs on Chinese imports even though Nike is a global company and is vulnerable to these taxes. Yet it closed + 1.2% on the day when the earth was supposed to flip polarity.
Fundamentally, Nike stock is not cheap as it sells at 33 trailing P/E ratio. But it is competitive when you consider that it only sells at three times its sales, which is in line with Apple (NASDAQ:AAPL) and almost half of Alphabet (NASDAQ:GOOGL) .
So even though it is near all-time highs, owning NKE shares now for the long term is likely to yield profits. So the decision to buy it now is one that depends heavily on the investor time frame.
The bears do have potential as they can cause technical harm if they can break below $81 per share. This would invite momentum sellers to target the $77 area. Although this is not a forecast, it is a possible scenario especially if the Chinese retaliations are more severe than anticipated.
For those who want to own NKE for the long term, a few bucks above or below current levels are not going to matter much. But for shorter-term traders, you can set triggers and stop losses to find entry points that suit their time frames. Long term, this too shall pass and bulls will win over the bears.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
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