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When I looked into the Nike stock, it was the chart that grabbed my attention. In June, positive earnings saw the stock open 14% higher overnight. The price continued to rally and saw a high of $174.38 per share. Since then, the stock has dropped nearly 10%. There are two things that concern me about the upcoming price action.

Firstly, gap fill

The stock previously had a high of $147.92, but opened at $152 after the stock gapped up 14% after earnings in June. This has left a zone where the price has not traded. It is likely that this zone will get filled before it rises away again. I believe the stock may drop to around $148.

Secondly, selling pressure

Nike have earnings due for September 23rd. Wall Street have estimates of earnings at $1.12 per share. The downtrend that the stock is in concerns me that there is less demand for the stock. If the stock is rising into earnings, it would indicate that investors are in anticipation of the long term value. The selling at the moment would suggest investors believe the stock is overpriced. Earnings that do not exceed estimates may cause a big drop in value, possibly even lower than the above mentioned $148.

It’s not all bad

There are some positives I see for the Nike stock. Recently, Lululemon reported strong earnings that saw the stock rise 14%. Also, Peleton rose in price when they announced they would be expanding their business model and start making clothing apparel. Both of these companies are in the same sector as Nike, so this is a good indication that investors believe in this sector. Maybe Nike’s current price is just too overvalued for their liking.

Long term value

The points raised above are concerns for the shorter term regarding the share price. But is there good long term value to invest? One pro for investing is that Nike is a dividend paying stock. This will help to create passive income that can be reinvested into buying more shares.

Nike has a market cap of $250B. These large companies are always safe bets for the long term. They will rarely struggle for funding and will be more established for a recovery. How important is this? In the early stages of the COVID-19 pandemic, there was a lot of uncertainty which caused fear, and fear causes selling and selling pressure saw the markets crash in March of 2020. But the large companies that are well established all coped well and recovered quickly. Nike was already a big name in the online space so they didn’t need to adjust their operations around lockdown procedures.

Final thoughts

I think Nike is a good company in the long run due to their strong financial and operational foundations and dividends. But in the short term I see bearish price action unless blowout earnings are seen.

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