Dow stock Nike could race higher ahead of earnings next week

Nike has broken out as one of the best performers of the Dow so far this year. One technician expects its stock to head higher even as another market watcher warns of potential trouble ahead of earnings.

"We started seeing, when you look at the chart, the relative outperformance of Nike versus the S&P 500," Craig Johnson, chief market technician at Piper Jaffray, told CNBC's "Trading Nation" on Wednesday. "That upward inflection there shows that Nike is outperforming."

Nike shares have taken an upward leg since hitting a 52-week low in mid-October. Its stock then climbed to an all-time high in late February before settling in March around the mid-$60s. It currently trades 5.5 percent lower than its highs.

This could be the start of a stronger upward move after a period of consolidation since 2015, says Johnson.

"We're starting to break out from here," he said. "The size of the base, the relative strength improvement, suggests that we could see a measured objective based on the charts up into the mid- to maybe even high $70s."

Since July 2015, shares of the Dow component increased 21 percent. By comparison, the XLY Consumer Discretionary ETF, which houses Nike, has risen 37 percent. The bulk of its underperformance stems from losses in 2016 when it was the worst Dow performer on worries over slowing earnings and sales growth.

"A potential recovery story [is] starting to unfold in Nike that would include things like more innovation, perhaps online distribution," said Johnson. "This story sounds like it's starting to get a whole lot stronger to us."

Boris Schlossberg, managing director of FX strategy at BK Asset Management, is wary of possible short-term moves for the largest sports apparel brand in the U.S. ahead of its quarterly report next week.

"The earnings coming up could be problematic because Adidas has really become the only viable competitor to Nike," he told "Trading Nation." "They have been making inroads in the North American market, and they have been taking a little bit of share away from Nike."

He added, "But Nike is up to that challenge."

The Oregon-based company is set to report its fiscal third-quarter earnings next Thursday. Nike sales in North America are expected to fall 3 percent over its February-ended quarter, while Adidas sales are expected to grow 5.5 percent over the three months to March.

Nike should still perform well over the longer term, says Schlossberg. His confidence lies in the strength of the brand and its cohesive retail strategy.

"They're investing a lot in experiential retail," he said. "That's the future of retail and, in that sense, they're really strengthening the brand as they go forward."

Nike was little changed on Thursday but has fallen 1 percent for the month. Its stock is on track for back-to-back monthly losses, its first since September 2017.


Trades to Watch

Trader Bios


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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more