Did you see the “swoosh pattern”? Here’s my take on Nike (NKE) (December 23, 2015)
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I want to look at Nike ( NYSE:NKE ) today. The company reported earnings that sent the stock up after hours yesterday, I think it was like 1.5 points, or something like that. Then the stock opens up this morning, this is known, in trader parlance, as a “gap and crap”. The stock gaps up first thing in the morning as all those real smart retail buyers RUSH to buy this stock. It’s like, “Oh my gosh! We’ve got to get Nike before everybody else gets in and hears about the earnings.” Meanwhile, the pros are saying, “Yes, I got your Nike right here. If you want to buy some Nike I’ll sell it to you for about $136.00, maybe a little bit more.” And so all the retail orders are filled. Of course there’s probably some short covering too, there’s about 9 shares shorted. I’m exaggerating, but not by much. There’s just not that much short interest in this stock. So this, frankly, is all just retail lemmings. I hope it wasn’t you. If it is don’t take offense, because I don’t know who you are, but resolve to never do this again.
The stock gaps up, it wasn’t a huge gap. To me a huge gap is anything over 5 percent, 7 percent. But this was like a 3 percent gap. There’s literally no follow through, no follow through at all. We can go to a 1-minute chart; the first minute was when it’s a “gap and crap”. If you bought it after 1-minute you need to be saying, “Oh crap!” If the stock DOES NOT continue to move higher on a gap, if it doesn’t continue to move within the direction of the gap after 1-minute, then you need to take your cue and exit the stock and resolve to never buy again until you’ve seen the stock trading for a few minutes. We have a course called The 59-Minute Trader, not The 60-Minute Trader. That’s because it’s designed to be trading during the first hour of the market. You’ve got to AT LEAST let the stock trade for a minute. So here, this was a short. Now, this hasn’t been a screaming short, it hasn’t moved down that far, but if you just took it down and said, “Okay, 59-minute trade, I’m out after an hour. That would have netted you almost a 3.5 percent gain.
But that’s not really why I’m talking about this. Frankly, as I do this video, I think you could buy the stock at 128.44 and probably make money, because it’s starting to run higher into the end of the day. And by the way, it is Nike ( NYSE:NKE ). The reason I’m making this video is twofold: first of all to illustrate to you, and this is about as real time as it gets (unless we did it first thing in the morning) to illustrate to you if a stock gaps up on a known catalyst, earnings. “Oh, the earnings were great,” although I’ve seen some reports, they weren’t THAT great, but the market obviously liked them; at least the retail guys did. I’m sure there were some upgrades because that’s what analysts do. They’re always a little bit like sheep, and when the news is good then they upgrade the stock to buy. You’d think that maybe they’d be doing that maybe when the stock was down and they’re trying to get their clients in before the stock moves higher. But go figure. I have proudly never worked on Wall Street, so I don’t get that game.
What I’m saying is, when the stock gaps up you know what the catalyst is, in this case earnings, there isn’t going to be another catalyst anytime soon, like that. So the stock gaps up, it starts to trade down. That is time for you to liquidate whatever longs you have. If you are long the stock, I was talking about this yesterday. To be quite honest with you I forgot the company was reporting earnings, which is my bad because it’s actually on my calendar; but I had said, “Hey, you know this is holding up okay. Looks like it’s a little extended, but it’s okay to buy.” But then they report earnings and what happens? Big gap, all time high and then a crap. So the second reason that I’m doing this video is this: to tell you, long-term, the uptrend is in tact. You look at the weekly chart, it’s totally working. You look to this pullback to the 50-day moving average. Hey, we’ve been there before.
Here was a big “shot across the bow”, here was another one but ultimately the stock recovered. I don’t see this breakdown as fatal to the stock. But I do see it as fatal to you if you bought this on this dip and are expecting this stock to start running up to new highs right away. That’s not how these things trade. Guys, and ladies, this is institutional distribution. This is people taking their profits, that maybe bought it below 70.00. Now they basically got a double and they’re saying, “You know what? Earnings were great but it’s not like I want to go add. so why don’t I subtract.” So it’s going to take a while of “churn and burn,” in this area, for Nike ( NYSE:NKE ) to get enough steam basically to form another sideways base like it does every so often, here and back here. So basically it’s going to take this a while to “churn and burn” and raise the average cost basis of traders right around this 130.00 level, and that could take a while. So if you are still long Nike ( NYSE:NKE ) I hope you’re in for a long haul. Because this stock is going to just drift sideways.
If, by the way, it starts drifting below, say, 125.00 then it’s likely to, I hate to prognosticate too far in the future because then I sound like some of these “chuckle head” technicians that come on espousing to know exactly what this stock is going to do. I’m not that guy. But I will say this, if the stock starts falling below 125.00, what that tells you is, everybody up here, that bought, is a loser. And in that case you’re going to see a lot of these folks selling. There’s not going to be a whole lot of buyers, at least not enough to overwhelm the selling. So in my view 125.00 is the line of demarcation, it’s the line in the sand. If this is broken, my bet is that ultimately you’re going to see this stock trade to the 200-day moving average. Whether it’s this way or whether it’s this way, but it’s going to trade down there. So keep your eye on the 125.00 level. And keep your eye on the first minute of trading on these gap ups and gap downs. They totally matter, and you can make money if you understand how to trade them.
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