Market Overview

The Run May Be Over In Nike

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After a 52 percent gain in 2013, Nike (NYSE: NKE) shares are off four percent in early 2014 trading. The majority of the loss occurred (1.74 points) in Monday's trading with no major news crossing the wires.

Perhaps the rout in speciality retailers, such as Lululemon Athletica, inspired some Nike shareholders to take some profits in the Wall Street darling. The issue, which bottomed during the financial crisis at 19.12, has rallied nearly 400 percent when it peaked at 80.26 in December.

Nike posted strong second quarter results, beating the Street by one cent ($0.58 vs. $0.59) and has not been able to mount a sustained rally off the announcement. Although it rallied to 79.01 on December 27, sellers began to aggregate just below that level (next three highs 78.83-78.95) and forced the issue to reverse course.

Also, the firm beat analyst expectations last quarter, reporting a Q1 EPS of $0.86 (versus the Street $0.78). Perhaps the narrower beat last quarter is signaling a slowdown in growth, which in turn could spook momentum investors in the issue.

Nike, which prides itself on innovation is rumored to be developing a new smart watch that will ship in early 2014. Not much is known about the device, but it is expected to be another athletic-oriented product. With Apple supposedly entering the watch realm as well, there will be increased competition to attract customers.

From a technical perspective, the chart leaves something to be desired. Monday's swoon was halted by the long term support at the 75 level, where the issued bottomed in late October. Even Tuesday's broad market rally has not been enough to stem the decline.

At this time, Nike has breached the 75 level and reached 74.64. Currently, the issue is attempting to reclaim the old support level If Nike fails to do so in short order, there may not be minor support until the October 17 low (74.08) and no major support until the October 10 low (71.94).

Nike, which is not due to report earnings until mid-March, will need to rely on ratings changes by Wall Street analysts for a catalyst to mount a rally. The Street has been relatively quiet regarding the issue, with the last comment coming on December 20. On that day, Citigroup, maintained coverage shares with a Buy and slapped a Street high $90 price target on the issue.

Nike has been unchanged or lower in eight of the last ten sessions (the other two being unchanged and the other a paltry $0.06 gain), may encounter plenty of willing sellers on a rebound. The reason being any investor entering the issue since November 4 is under water.

Since Nike has been a wild child when it releases earnings, investors banking on a rebound may want to consider out of the money calls or a call spread to limit their loss if the company disappoints.

Posted-In: Technicals Movers & Shakers Intraday Update Trading Ideas General


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