Wednesday, December 22, 2010

NKE Watch

Nike Inc. (NKE) released earnings after the close on Tuesday, beat the Street by a respectable 6¢, and the morning after fell more than 5% below the prior close. Talk about a swift kick to the corporate assets!

ppspsarmacd obvh-a trend ma20ma50ma200
NKE $87.23

The post-earnings news reports were a very mixed bag: Several price target increases, concern about the impact of inflation (What inflation!!!!?) on production costs, and a statement by the rival Adidas CEO claiming that his company will grow faster than Nike in 2015.

Did I hear someone whisper, "Rational markets"?

As forensic traders, let's sift through the rubble.

The price decline all happened in after-hours trading. The price has held steadily since the open, with a low of $86.61 and a high of $88.25.

The price sliced through the 20-day moving average but held above recent price support levels. Basically, the decline eliminated much of the rise from late November.

On the Person's chart, the gap brought today's opening at about the lower weekly target, and the price declined about a third of the way to the next lower target.

Person's Table
ppspps openupper pivotlower pivot
NKE $87.23 $87.00 dec22 $92.20 +5.7% $83.95 -3.8%

This is all a long way of saying that it's an orderly retreat from the all-time high set on Tuesday, not a full-panic rout.

Reversal Levels
  • $92.49, +6.0% (all-time high)
  • $88.25, +1.2% (today's post-gap high)
  • $87.23 --- You are here.
  • $84.67, -2.9% (50-day moving average)
  • $80.26, -8.0% (weak swing low)

I'll be looking for an exit, but given the counter-intuitive nature of the decline, I'll look for a tactically advantageous moment.

I think it's important to note that the candlestick is showing a spinning top -- a hesitation pattern. For that reason, I consider the extremities of the wicks -- today's low and high set in early trading -- to be important levels.

Also, a counter-surprise decline is unusual for Nike. The last time it happened was in June 2009. On that occasion, the price recovered within a few weeks. No guarantees, of course. Past in the markets is not necessarily prologue.

Another factor impacting the decision is the fact that my position is in options, a short vertical spread -- it makes money as the clock ticks down toward January expiration. So the longer I can hold off selling, the more the position benefits, since time decay accelerates in the last month of an option's life.

And in fact, the position will be profitable down to about $85.76 as of today, and down to about $83.92 at expiration. The stock would have to take another fairly sharp hit for those levels to be reached, and I don't see what could motivate such a decline. The bad news for the next few weeks is already out there.

If the price holds above today's low so far of $86.61, then I'll continue to hold the position. If it falls below that level, then I'll reassess. A drop below the 50-day moving average, now at $84.67, would trigger an immediate exit.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

  • h-a trend - Heikin-Ashi trend.
  • obv - On-Balance Volume.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma50 - 50-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • obv: green for uptrending, red for downtrending.
    • h-a trend: green for uptrending, red for downtrending.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.

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