Nike Stock (NKE) Trade Ideas For Last Week of January 2014

Nike stock is in a serious downtrend that has been gaining momentum to the downside. This will mark the fourth week of declines for Nike Stock. Like many stocks, Nike is collapsing back to the valuations last seen in the fall of 2013. The stock easily collapsed below the 50 and 1o0 day moving average. It is now approaching the 200 day moving average. When it does hit the 200 day it will be unbelievably oversold.

Earnings are not out until around March 20. Analysts are pegging earnings won’t be any better than least year for the same quarter which were .73 cents.  Right now the stock is at 24.4 X PE which is average for this industry, but from here as the stock falls it is moving back into a region where Put Selling could become highly profitable again on Nike. Even picking up shares and selling in the money covered calls could bring out some decent returns. For those investors who like this type of retailer, buying stock now at $71.65 and selling the March $70.00 calls for $3.45 could be an intriguing play. It might earn the next dividend of .24 cents which is around March 12, but if the stock does head lower and falls back to below $70, an investor could end up owning shares for $67.96 (including dividend).

If it doesn’t, then return would still earn $1.80 upon exercised at $70. for a little over 1%. This is the best return but the trade has a lot of protection and really is more a trade against the stock moving to the 200 day moving average. It is a way to try to get into the stock at a decent price and then sit out any further downside action should it happen. Then an investor can sit and wait for the stock to recover. Meanwhile if Nike stock gets down to $69.00 or $69.50, this trade could be rolled forward to bring in more income.

Looking at the 6 month Nike chart you can see the huge decline the stock is in. The 200 day looms ahead just below the $70.00 level. Selling the calls now could end up allowing a buy back if the stock hits the 200 day exponential moving average (EMA) before bouncing. Then when it bounces, investors could resell the $70 covered calls all over again.

There are three support levels worth mentioning. The first at $68 is very light. The $62.50 and $63.50 support levels are much stronger. They stretch throughout much of 2013. With earnings stronger than the early half of 2013, I would expect this stock could have a hard time falling much below $68 but sometimes stocks can surprise both to the upside and downside. With so many investors worried about the last few days of pullbacks, investors often panic and they can dump stocks below their fair value. Last year in the summer I wrote that Nike stock was fairly valued around $65. We could see that price again this winter to spring if investors remain bearish on Nike and right now they are very bearish.

Nike Stock 6 months chart

6 month daily chart of Nike Stock

There are a lot of signs that this stock could bounce. The Slow Stochastic and Fast Stochastic are very oversold. In fact it is deeply oversold. Momentum is in a deep large swing lower. This is the biggest momentum push to the downside since the summer months of 2012. That tells you investors are really starting to worry here. MACD continues to signal lower prices are ahead although the MACD histogram (grey chart behind the MACD linear lines) is trending more sideways than down so the oversold condition may be about to slow.

Nike Stock Trade Ideas – Last Week of January 2014

To conclude, those of us who love selling puts may want to place this on the top of their watch list as the stock could be poised to collapse against the 200 day and then attempt to recover. This will push put premiums a lot higher than at present as investors worry that the stock could break the 200 day moving average. That will be when I look to sell puts on this stock.

Right now, Nike is sitting right at the top of my watch list for this upcoming week.

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