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Not so fast: Run for athletic apparel stocks is over, two traders say

Athleisure stocks are quite weak at current levels and face difficulty regaining their footing, two traders say.

Athletic apparel has been struggling for quite some time, said Craig Johnson, senior technical research analyst at Piper Jaffray, who argues that they're one of the market's worst subgroups.

Shares of Under Armour are down nearly 30 percent this year. Last week, the company reported quarterly sales below analysts' expectations and announced its chief financial officer is departing. And Nike is down over 8 percent in the last year, though up 4 percent in 2017. In its most recent quarterly earnings report, Nike said in December its future orders growth in North America contracted by 4 percent.

"In fact, both of these stocks look like they've been put in the penalty box for a while. Under Armour looks like it's got a 10-minute major, and Nike looks like it's a two-minute minor penalty at this point in time," Johnson said Tuesday on CNBC's "Trading Nation," sparing no pun.

Examining a five-year chart of the stock, Johnson noted that Nike has made a series of "lower lows and lower highs for a while," and he would need to see a close above the $55 level to reverse the downward trend.

He said Under Armour is "much more challenging" because it has taken a large gap down and it missed on earnings. He did say it appears to be due for a bit of a relief rally.

"But again, you're still trying to trade a stock that's in a pretty well-defined downtrend. I see the best ultimate support on this stock at about $16. Look for the stock to go higher first, but ultimately re-test that 16. And that's where I'd get more interested in trying to take a long position in that stock," he said.

Such a move lower to $16 would imply a 22 percent move down from where the stock closed Tuesday, at $20.47 per share.

Eddy Elfenbein, editor of the Crossing Wall Street blog, echoed Johnson's concerns.

"Both stocks are not in a good way right now," Elfenbein said Tuesday on CNBC's "Trading Nation."

The issues faced by Under Armour are "far more acute" than those of Nike's he said, noting the company has for 26 straight quarters delivered revenue growth over 20 percent.

"And then they tried to broaden out. I don't think they know exactly what kind of company they are, because they're trying to be more than they've been, and it hasn't been working," Elfenbein said.

He said he would need to see better performance in Nike before he bought in.

On CNBC's "Halftime Report" on Tuesday, Under Armour CEO Kevin Plank likened the company to Patriots quarterback Tom Brady, in light of the team's come-from-behind Super Bowl victory. He suggested investors should consider the company's previous successes before counting it out.

"You know, I think a lot of people bet against Tom Brady the other night, too," Plank said.

As for Nike, Elfenbein noted the company's declining growth and said he sees more downside ahead, but unlike Under Armour, he thinks Nike will be a buy again.

The companies could suffer should the Trump administration implement a border adjustment tax, he added.

"I think from my perspective, if we see some of these border tax and even repatriation of some dollars, you've got a mixed set of headwinds there. But ultimately, at the end of the day, I do think that Nike, on a repatriation of dollars, will see a meaningful leg higher, because they do have quite a bit of dollars offshore," Johnson said.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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