Is Nike’s Chart Signaling A Massive Crash?
Colby Dugger | Jun 28, 2019 02:01PM ET
The chart below is Nike’s (NYSE:NKE) monthly chart forecasting a bearish head and shoulders pattern. I use this timeframe to look at the bigger picture of any stock I consider trading (long-term or short-term). A novice trader may see a bullish pattern in the near-term, but they can get burned, especially, when there is a catalyst such as earnings on the horizon. The longer the timeframe, the more reliable the chart pattern. Coincidentally, or not, Nike missed earnings for the first time in 27 quarters and with tariffs looming we could see a continuation in this trend.
The left and right shoulder are typically a similar distance in time apart from the head. Given it took two years to form the left shoulder, we can expect it will take a while for this pattern to play out.
To get an idea on how one might trade this pattern, let’s take a look at Dave & Busters (NASDAQ:PLAY), an options trade that netted over 2000% for us earlier this month.
We took puts at .15/contract on 6/11 prior to earnings that afternoon. Subsequently, the stock went down over 20% and our puts skyrocketed to $3/contract. This is a great example of how a combination of a catalyst such as earnings, a perfect pattern setup, and a not so innovative company can net huge returns by purchasing put options (playing the stock to go down).
Nike is a great company, but I will be waiting patiently to make a play down the line if this pattern plays out.
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