Nike Loses a Shoe

07/16/03 01:46:04 PM

by Arthur Hill

Nike failed to recover from the 27-Jun gap down and the evidence points to further weakness.

Security: NKE
Position: Sell

After nearing its 52-week high (red arrow), NKE suddenly gapped down with a high volume decline below 55. The move broke trendline support and the June reaction lows at 54.30. Since breaking support, the stock has consolidated within a tight trading range. A move below the consolidation low (52.5) would signal a continuation lower. Based on a flag, the expected decline would be below 50 (57.5 - 52.5 = 5, 54.5 - 5 = 49.5). This would entail a major support break at 51 and turn the medium-term trend bearish.

Figure 1: Daily chart for NKE.

Momentum and relative strength argue for lower prices. MACD formed a large bearish divergence over the last few months and moved below zero in early July. Upside momentum began to wane with the lower high in June and the move into negative territory translates into outright selling pressure. Relative to the S&P 500, the stock began to underperform in early April. The price relative peaked at the end of March and moved to a new reaction low in early July. Stocks that underperform the broader market are more vulnerable to general downturns.

Figure 2: Weekly chart for NKE.

Graphic provided by: MetaStock.

Should the stock break flag support at 52.5, there are two items to watch for support on the weekly chart. First, there is an ascending price channel that extends up from October and the lower trendline marks support around 50. Second, broken resistance usually turns into support and any decline could stall around 48. Should NKE break support at 48, a continuation of the prior decline would be signaled and a move into the low 40s expected.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Nike Loses a Shoe

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