31Oct10:40 amEST

Just Think of it as Turbulence in the Skies

It is often said that an airplane experiencing even rough turbulence is barely noticeable from an outside observer looking at the plane objectively, as opposed to being onboard and feeling as though the plane is on the cusp of losing control. In reality, the plane is not dropping or moving around nearly as much as it seems. 

The same might be said for stocks which have been ascending for many, many years, if not decades, and are now experiencing turbulence. 

Nike is one such example, a glaringly weak consumer leader since last Thanksgiving, illustrated on the first daily chart, below. NKE had been rather extended for quarters before that, too, leading me to have a consistently cautious or bearish bias on the name. While that was not always a popular position to take, in reality the risk/reward profile had diminished considerably for longs and we are now seeing the fallout of an abnormally-steep angle of ascent for years on end finally correct. 

So now that the NKE correction has come, the stocks seems like it cannot catch a break. Longs who have been adding all the way down are surely to the point of serious concern if not panic, especially with this morning's drubbing after a Bank of America analyst threw more cold water on the name. 

However, the second chart of the last few decades illustrates the larger perspective. Nike is still in an epic bull run. But it is simply finally correcting, which was the risk all along during its too-steep uptrend. While it is true that one never knows exactly where one is in a trend, it is also true that common sense can come in handy during these steep moves--The longer they stock stays at the party, the worse the hangover. 

The good news for bulls is that a move down to the 20-period quarterly moving average, in the mid-$40s or so, may go a long way to possibly resetting the stock for a new leg higher without any real long-term damage done. Below $40, though, and the risk of a retrace down to the 2012 levels become a bigger threat. 

For those aboard Nike Air, the turbulence feels rough, But for those of us on the ground looking up at the plan, it is not surprising at all to see the bumpy ride. 

Weekend Overview and Analysi... Biding Your Time


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