Not all stocks have been lifted by the rising market; some are conspicuously lagging. In our commentary on Dow stocks earlier this year, we had pegged NKE to be an underperformer and even expected a move to the mid 40’s before a turn would happen. In the past few weeks, NKE has managed to attract enough buying to turn some market indicators around so that now they look intriguing.
Bottom picking is fraught with hazards since there can be many false dawns and once a decision is made to make a foray into what appears to be a bottom, subsequent lower prices are met with incredulity and stubbornness, leading to a trapped position. Buying weak relative strength stocks is not our methodology but in the case of NKE, there are a few early signs that a turn may be underway.
Observing the weekly chart brings a few things to our attention. The purple ellipses in the chart above indicate that a change in price action is underway, enough to alter what has been a steady downtrend. The price has spiked above the 50 period moving average, a hint that a trend change may just be beginning. The DMI indicator has crossed and the directional line is on the verge of a slope change. Looking at another set of charts below, we notice that NKE is finally beginning to show relative strength versus the S&P as shown by the indicator line peeking above the EMA of that ratio. Also note that the longer term MACD’s have actually turned positive a few weeks ago. This will have to be watched closely to see if price action can continue to positively move this relative strength line.
Finally and perhaps most compelling is the longer term monthly chart which shows clearly that NKE is still in a very long term uptrend which has been on pause for the past year or so. The accumulation statistics have not yet turned positive on this monthly chart, but there is enough evidence in the shorter time frames to warrant a long position with a tentative stop at just below 50.