Dow stock Nike just had a blowout quarter and the chart points to more gains

Investors have renewed confidence in Nike after a blowout quarter. Even before the company reported earnings, the charts showed Nike as a buy, says one market technician.

"We like the chart, we like the longer-term setup from what we're seeing here," Craig Johnson, chief market technician at Piper Jaffray, told CNBC's "Trading Nation" on Thursday. "You can see that there's this big base that's been forming over the last two years."

"You're seeing improving relative strength and from our perspective on the charts, a close above $68 is going to open up the possibilities of a whole 'nother leg higher from here," he added.

Nike shares are consolidating around the 50-day moving average, a level of resistance around $67 to $68 a share, says Johnson. As of Thursday's close, Nike was trading slightly below its 50-day moving average, though it has held above its 100-day and 200-day moving averages this year.

The sporting brand's relative strength index is also headed lower, moving closer to oversold conditions after a sell-off this week. Its RSI, a measure of overbought and oversold conditions, ended Thursday at 41.43. A level below 30 indicates a stock is oversold.

"We like what we're seeing, we like the relative strength, we think it's a buy," said Johnson.

Nike earned an adjusted 68 cents a share over its third quarter, far higher than an anticipated estimate of 53 cents. Revenue surged more than 6 percent to $8.99 billion, led by international growth. Sales came in higher than consensus.

A broader market sell-off dragged Nike shares lower this week. Its stock was down nearly 3 percent in the week as of Thursday's close, putting it on track for its worst weekly loss in more than a month. However, the stock was up nearly 5 percent in Friday's premarket. For the full year as of Thursday's close, shares have added 3 percent, making it just one of eight Dow stocks positive in 2018.

There's value elsewhere in the retail space, notably among home improvement chains, adds Larry McDonald, founder of the Bear Traps Report. McDonald predicts a big windfall for retailers such as Home Depot and Lowe's, housed in the XHB Homebuilders ETF, if Congress finalizes financial reforms in the next few weeks.

"Legislation in Washington on community banks is extremely beneficial to the XHB," said McDonald. "Those homebuilders have exposure to the consumer, and this legislation is really going to free up a tremendous amount of lending to smaller banks."

McDonald expects easing of Dodd-Frank regulations implemented after the 2008 financial crisis to lead to a pickup in activity at smaller and regional banks. Increased lending might then incentivize homebuilding and homebuying, trickling down to the home-improvement space.

As of Thursday's closing, the XHB ETF had fallen 8 percent this year, while Lowe's and Home Depot had dropped more than 7 percent.

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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.

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.

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