Overall, the broader equities have had a challenging time in this calendar year; however, that being said, over the last couple of days, many good quality stocks have shown a strong potential of putting a base for themselves and attempting a trend reversal. NIKE, Inc., (NKE) is one such stock!
NIKE, Inc. engages in the design, development, marketing, and sale of athletic footwear, apparel, accessories, equipment, and services. It operates through the following segments: North America, Europe, Middle East & Africa, Greater China, Asia Pacific & Latin America, Global Brand Divisions, Converse, and Corporate.
NKE is a member of many indexes; bigger and smaller. Among the major ones, the stock is the constituent of the Dow Jones Industrial Average (DJIA), S&P500, S&P100, DJ Large Cap, NYSE Composite, and S&P Global 100.
Just like all leading stocks, NKE too had a bad calendar year; a look at a Relative Comparision chart endorses this observation. On a YTD basis, NKE has grossly underperformed the broader S&P500 Index on relative terms. While the S&P100 lost 17.41% on a YTD basis, NKE has lost 33.73% over the same timeframe.
A close technical look at the technical charts of the stock shows that it is laying some solid framework for staging a trend reversal as highlighted by multiple pieces of evidence present on the chart.
A look at the weekly chart shows a few important developments from a technical perspective. The stock broke out from a pattern formation as it move past 104 in August 2020. This led to a major breakout; the subsequent price action took the stock to its high point of 179.10 in November 2021. After this, the correction in global equities followed; this stock wasn’t spared either. The corrective decline saw the stock testing the low point of 99.51 in July 2022.
The most recent price action throws some important observations. The extended trend line drawn from the 104 levels is seen extending solid support to the stock. The stock is presently below all the three weekly Moving Averages; the most immediate resistance for the stock is seen at 200-Week MA which is currently placed at 113.65. However, this extended trend line continues to be a major support for the stock.
Besides this, some more potent technical indications are seen in the form of the RSI showing a strong bullish divergence against the price. From the price level of 116, the price has made several lower bottoms, but the RSI has not done so. This has led to a bullish divergence of the RSI against the price. This can contribute a lot to the potential bottom formation and a reversal of the trend especially if such divergences occur after a meaningful prior downtrend.
Apart from this, the RS line, i.e., the Relative Strength Line of NKE against the broader S&P500 index rests at important support. The stock also is inside the improving quadrant of the RRG; this may lead to some resilient relative performance against the broader markets.
If the present technical setup resolves on the intended lines, it may lead to a potential trend reversal in NKE. After facing some modest resistance near 114 levels, the stock has the potential of testing 123 and 132 levels translating to a likely appreciation of 21% from the present levels. Any close below 98 would have this analysis negated.
Milan Vaishnav, CMT, MSTA,
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)