Nike Looks Ready To Run

05/24/07 10:26:32 AM

by Arthur Hill

After a long consolidation period, Nike gapped up off support and looks ready for a run to new highs.

Security: NKE
Position: Accumulate

Nike surged above 50 in February and then began a three-month consolidation. The stock has traded between 51 and 55.5 since mid-February, representing a long rest within the uptrend. A break above the consolidation highs would signal a continuation higher and forge a new 52-week high for the stock.

Even though the stock remains below consolidation resistance, there are already signs of strength and a breakout looks imminent. First, the stock gapped up off support with above-average volume (Figure 1). The 200-day moving average has been applied to volume, and Monday's volume moved above this key level (green oval). Second, 5-35 moving average convergence/divergence (MACD) moved above its signal line and into positive territory. This version of the MACD uses the five-day EMA and the 35-day EMA. The move into positive territory is bullish for momentum and signals an end to the corrective phase.

FIGURE 2: NIKE, DAILY. The 200-day moving average has been applied to volume and Monday's volume moved above this key level (green oval).

Graphic provided by: Telechart 2007.

The third and final signal is a Bollinger Band breakout. The magenta trendlines show the Bollinger Bands, and the stock closed above the upper band for the first time in months. There were prior attempts to break above the upper band, but the stock fell back by the close and failed to complete the breakout. Monday's close above the upper band shows power behind the move and this increases the chances of a breakout. The move also reinforces support at 52.5 and a break below this level would negate the breakout. See Figure 2.

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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