Nike's charts are flashing a bullish signal that could forecast a 20% surge

Nike's stock price reflects strength of US consumer: Investing pro

Nike has kicked off February on the right foot.

The stock has surged 5% in just two trading days, receiving a fresh boost Tuesday after BMO initiated coverage with an outperform rating. Analysts said the brand has "no parallel in history when it comes to size and scope of its North America sales."

After a weak January for the stock, MKM Partners chief market technician JC O'Hara says the charts could be flashing a particularly bullish signal.

"Nike has been one of those charts where it has historically paid to buy pullbacks, especially within the longer context of the uptrend that's taking place. One way to find out whether a pullback is buyable is looking at the RSI indicator," O'Hara said Tuesday on CNBC's "Trading Nation."

Its relative strength indicator, or RSI, fell as low as 28 late last week. Any reading below 30 signals oversold conditions.

"Every time we reached 30 especially over the last 18 months, we've seen Nike shares rally 20%. So coming into the trading week, we saw Nike was exactly at that 30 oversold condition on RSI. So if we extrapolate that 20% average move over the last 18 months to the current price, we could see Nike break to new highs and target that $115 price point," O'Hara said.

When Nike's RSI fell to 25 in August, its shares rallied as much as 24% in less than three months.

Nike's shares closed at $101.38 on Tuesday. A move from January's close at roughly $96 to $115 represents nearly 20% upside.

However, the spread of the coronavirus and the potential impact on Nike's business is still keeping investors on their toes. Nike shares dipped slightly in Wednesday's premarket after the company said roughly half of its owned stores in China had been shuttered.

Steve Chiavarone, portfolio manager at Federated Hermes, says Nike can still bounce back from any disruption out of China.

"The coronavirus risk is real … [but] our general view when we look at these things is we assume that these are not end-of-the-world scenarios and that we're talking about demand and production that is delayed and not destroyed but it's something we're watchful of," he said during the same segment.

Chiavarone added that strength elsewhere should counter any weakness out of China.

"At the end of the day, the story with Nike right now has been the strength of the U.S. consumer. And it's indicative of what's been a very strong consumer environment in the U.S. over the course of the last couple of years," he said.

Nike generates 41% of its revenue in North America, its largest market. Sixteen percent of sales are from Greater China.