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NKE: New Wave V Buy Setup Playing Out

02/26/15 05:26:07 PM
by Donald W. Pendergast, Jr.

Shares of Nike Inc B are moving higher in a wave V rally, with weekly price cycles in full agreement.

Security:   NKE
Position:   N/A

Nike Inc 'B' shares (NKE) were trading at 39 cents in January 1987 (adjusted for stock splits, of course) and have enjoyed a stupendous — and relatively smooth — long term advance since the late 80s heyday of hair metal, Reaganomics, mullets and Madonna; the stock now trades at 94.90 and that translates into a percentage increase of 24,233% in just over 28 years. But even with such gains, nothing prevents a solid large cap stock with healthy earnings from moving even higher — and the Elliott wave and price cycle dynamics for NKE couldn't be more bullish now, especially with Nike's parent index (DIA, $INDU, @YM) now making fresh all-time highs again. Here's a closer look now.

Figure 1. Nike Inc 'B' (NKE): With its long-term money flows indicating that the big institutions are holding on for more gains, this new wave V rally in this stock becomes even more attractive.
Graphic provided by: MotiveWave Ultimate from
The daily Elliott wave chart in Figure 1 pretty much says it all regarding the bullish posture of NKE right now:

1. The wave IV correction was a complex variety compared to wave II (rule of alternation) and retraced 100% of wave II's decline. It took about twice as long to form however, and that is also a healthy proportion between the waves.
2. The 89-day Chaikin money flow histogram (CMF)(89) has remained exceptionally bullish all during the 11-week pullback of said wave IV; this tells us that the "smart money" fully intends to push NKE higher as 2015 unfolds.
3. The dominant weekly cycle (not shown) in NKE is 22-bars (trough to trough); it has already bottomed and is now rising, fully confirming this wave V advance on the daily chart.
4. The stock continues to outperform the S&P 500 index (.SPX, SPY, @ES) over the past 26- and 52-week periods.

The nominal Elliott wave price targets for wave V are as follows:

A. .618 * wave III = 108.29
B. 1.00 * wave III = 119.43
C. 1.618 * wave II = 137.45

The smallest target is still nearly $14 higher than where NKE is currently trading, so this could be a great near-term covered call trade idea if using mildly in-the-money or at-the-money call options with a four to eight week lifespan. Daily chart swing traders can also latch on to the power of this bullish wave by timing new long entries on 60-minute pullbacks against the uptrend; the 24-bar daily price cycle has a 70% chance of topping by March 9, 2015 and a 30% chance of peaking sometime after that date, so there is still time to pick wise entry points as this wave V develops. The next meaningful resistance zone is near 99.65 (the wave II high made in December 2014) and even that is nearly $5 above NKE's current valuation.

Overall, this is one of the best "low risk, good reward" long trade setups in the US market right now — mostly because the Elliott and price cycle dynamics are in complete harmony on multiple time frames.

Figure 2. The Monthly Chart. NKE's monthly chart reveals two proportional advances since March 2009; note how the long-term money flow histograms deteriorate prior to every wave termination point; this is known as 'distribution' as institutions progressively lighten up their holdings.
Graphic provided by: MotiveWave Trading Software at
For investors who have been long NKE for several years now, be aware that the stock has been in a rising parabolic trend coming out of the June 2012 lows and that at some point a proportional correction of the massive gains seen since then will take place. Swing trading NKE per the daily Elliott wave structure described previously is fine and dandy, but this is probably not a good time to make new long-term position or buy/hold purchases; a word to the wise should be sufficient. Trade wisely until we meet here again.

Donald W. Pendergast, Jr.

Freelance financial markets writer and online publisher of the S&P 500 Weekly Forecast service.

Title: Market consultant and writer
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