How to trade Nike after the earnings report

Otmane El Rhazi : The sports footwear and clothing company Nike Inc (NKE:xnys) is set to report its fourth quarter earnings today after the close of trading. The stock also currently happens to sit at an interesting technical juncture on the charts, which could allow traders to take advantage of a post-earnings move on Friday. Anytime a big name company’s stock is in a technically sound position as earnings approach, i.e. the news-flow either matches up with or comes up against a technically sound picture of a stock, I sit up and take notice as it often spells opportunity.

Analysts’ estimates are for Nike to post fourth-quarter earnings per share of USD 0.75 on revenue of USD 7.34 billion.

Over the past week, as the earnings report approached, several analysts came out with updates on their views of Nike. On Monday, an analyst at Morgan Stanley reiterated his Overweight rating on Nike, with a USD 85.00 price target.

It’s also important to keep in mind that both the broader stock market as well as the consumer discretionary sector, to which Nike belongs, are still constructively positioned and defiant. This does not mean that should Nike report weak earnings a viable trade may not set up on the short side, it simply signifies that the path of least resistance remains higher.

From a multi-year perspective on the weekly chart, below, Nike stock has had a great run off its early 2009 lows. However, at the end of 2013, it began to run out of steam. The going thus far this year has been choppy for the stock, although the more nimble traders and investors had a couple of opportunities to play the stock both long and short. However, in the big picture, the stock is consolidating the multi-year rally and is likely to need a better catalyst to move out of the blue box on the chart, below. That catalyst has the potential to be the earnings report that’s on tap later today.

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