In the news, on the chart
09/06/18

Nike shares bounce back a day after dropping 3% amid new ad campaign

●NKE rally bucked the broad market’s bearishness Wednesday

●Company scheduled to release earnings later this month


 

There are a lot of reasons a stock can fly in the face of the broad-market trend on any given day, so it can be unwise to attribute too much significance to it, but there are other times when the situation bears a little more scrutiny.

 

Yesterday, with the S&P 500 (SPX) in the fourth-day of a pullback and down around 0.5% at 11:15 a.m. ET, shares of Nike (NKE) were up around 0.75%, and near their highs of the day:

Nike (NKE), 6/12/18–9/5/18. Nike (NKE) daily price chart. Bucking the trend.

Source: OptionsHouse

So what? Well, this was the day after NKE took a 3.2% hit amid the release of its new ad campaign featuring currently unemployed NFL quarterback Colin Kaepernick. In the markets, it’s always a good idea to separate emotions from decision making, and personal opinion from objective analysis. In this case, the relevant issue for traders isn’t the larger controversy surrounding kneeling during the national anthem, but the answer to the following question: Is it possible Nike was oblivious to the possible blowback that might come its way by taking on the issue head first?

Answer: Possible, but not probable. Nike has a long track record for savvy marketing and staying abreast of consumer trends. They have one of the world’s most recognizable logos (and catch phrases—“Just do it”), partnership deals with some of the world’s most famous athletes (including LeBron James, Serena Williams, Cristiano Ronaldo, Tiger Woods, and some retired guy named Michael Jordan), and a $127 billion market cap.

And while the old saying “any publicity is good publicity” is a bit of an exaggeration, consider that in just the first 24 hours of releasing its new ad, Nike is estimated to have reaped the equivalent of $43 million of media exposure, with the majority of it neutral to positive.1

Giant, iconic companies can make boneheaded moves (do a search on “New Coke, 1985”), but there are reasons some traders may think this isn’t one of them. (And Coke’s still around, by the way.) Aside from yesterday’s market-bucking rally, a weekly chart shows NKE was firmly entrenched in an uptrend prior to Tuesday’s dip, and close to the most recent of the new highs it’s pushed to in recent weeks:

Nike (NKE), 8/10/15–9/5/18. Nike (NKE) weekly price chart. On the rise.

Source: OptionsHouse

That uptrend appears to be supported by the company’s books recently. A quick check of its quarterly reporting history shows the company has topped earnings estimates for at least the past 10 quarters, and beat revenues eight out of those 10. (It’s next release is scheduled for September 25. The large up-gap on the first chart followed Nike’s June 28 earnings release.)

A clueless mistake or a calculated risk? The ability to hold Monday’s low ($79) may be the final arbiter, at least in the near-term. Experienced traders wouldn’t necessarily expect NKE to rally in the face of an extended or exceptionally sharp downturn in the broad market, but the fact that it didn’t immediately follow through to the downside—while bucking yesterday’s market weakness—may lead bulls to take notice.

Market Mover Update: After tagging resistance on Tuesday, October crude oil futures (CLV8) sold off more than 1.5% intraday yesterday after Tropical Storm Gordon appeared to leave oil and gas operations in the area largely unaffected.2

Twitter (TWTR) fell more than 6% intraday and Facebook (FB) more than 1.5% yesterday as executives from both companies faced questions on Capitol Hill about the risks their platforms pose in enabling foreign players to meddle in US elections.3 FB shares, coincidentally dropped below $168, approaching the late-July lows they made in the aftermath of their most recent earnings.

 

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1 Bloomberg.com. Kaepernick Campaign Created $43 Million in Buzz for Nike. 9/4/18.

2 MarketWatch.com. Oil falls as Gulf Coast storm Gordon misses major energy operations. 9/5/18.

3 CNN.com. Silicon Valley execs face Capitol Hill grilling. 9/5/18.