Last month, Nike Inc. (NKE) shares were showing signs that the longer term bullish trend may be temporarily over as price after multiple attempts was unable to break above the $133.52 resistance level. The recent run up was spurred by the September 24th third quarter earnings release that beat analyst’s estimates. Earnings per share printed at $1.34 vs. forecasts of $1.19 and revenue came in higher at $8.41 billion vs. the $8.22B estimate. Following the earnings release, many analysts upgraded their price target for the apparel giant to the $135 to $140 range.
Price action on the Nike Inc. daily chart indicates that since making a new record high on October 19thoverbought conditions have supported a pullback. While the fundamentals appear strong for Nike, the stock may have run up too quickly. If we see the current pullback continue, major support may come from the $127.00 area. It is around here that a bullish Gartley pattern could form. Point D is targeted with the 78.6% Fibonacci retracement level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C leg. If valid, we could see price rally towards last week’s high of $132.23.
If the reversal pattern is invalidated, we could see price drop towards the 50-day SMA, which currently trades at the $119.80 level.
Eventually, the longer-term bullish trend may return and we could see price ultimately target the $140.94 level.
The Trade: Buy Nike at $127.50, with a stop loss at $125.50 and a take profit at $133.50. The Risk/Reward Ratio is 1:3