Nike Trying To Hammer Out A Bottom

04/13/05 08:09:16 AM

by Arthur Hill

Despite the lone hammer, larger bearish patterns still dominate Nike, and the hammer needs confirmation.

Security: NKE
Position: Sell

For Nike (NKE), the bearish signals outweigh the bullish signals. Nike gapped higher in mid-December and peaked soon thereafter. The December-January decline filled the gap, and it should be considered an exhaustion gap. These are bearish, and the stock continued lower the next few months.

The pattern in 2005 looks like a falling wedge or price channel. Lower lows and lower highs dominate, showing that sellers are clearly in control. Any advances below the upper trendline will be deemed corrective until there is a break above this trendline.

Figure 1: Nike. For now, the larger trend is down.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

Since the late March low, the stock managed to firm around 82 and a pennant formed. These are bearish continuation patterns, and a move below the lower trendline would signal a continuation lower. This move did indeed happen, but the stock rebounded to form a hammer (green oval).

The hammer is a bullish candlestick reversal pattern that requires confirmation. For now, this hammer simply affirms support around 81-82. A move above 84 would break the upper pennant trendline and early April high. This would confirm the hammer and open the door to further strength. For now, however, the larger trend is down and the stock did pierce the lower pennant trendline. This price action should be considered bearish until proven otherwise with a confirmed hammer.

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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