Nike, Inc. (NKE): Yes, There Was a Way to Foresee the Selloff
From its all-time high on November 2, 2021, Nike Inc. has plunged nearly 50%. If the Elliott wave shoe fits, wear it!
by Nico Isaac
Updated: September 30, 2022
The athletic apparel giant Nike Inc. is named after the Greek goddess of victory, Nike. The golden figure is depicted as a winged deity, soaring above all others in any field including art, music, war, and sports. But this chart of Nike, Inc. stock portrays a very different image; one befitting, say Perses, the Greek god of destruction.
After rising to an all-time high above 175 on November 5, 2021, the Big Board behemoth NKE has plunged 45% to a 2-year low on September 29.
Mainstream media outlets have been about as helpful as a hammer and a box of screws in nailing down where NKE is headed next. On September 22, CNBC presented a bullish front, saying "now is the time to buy the '100lb Gorilla in Sportswear as Nike is Poised to Surge 27%."
Meanwhile on September 26, Yahoo Finance took this cautionary tone for the future of the "big fat egg":
"There are a multitude of increasingly brutal headwinds facing major retailers, these concerns have Wall Street analysts poised for a dose of gloom from mighty Dow component Nike later this week and a potential further sell-off in the stock (shares are already down 12% in the past month).
"We think there's going to be a really, really tough holiday."
But before investors in the storied sportswear stock decide where Nike is headed now, they need to understand why it fell from grace in late 2021 in the first place. After all, it wasn't the top scenario expected by the mainstream experts at the time.
Back then, Nike shares were on a tear, soaring to a record high above 175 on November 5. On October 12, 2021, Yahoo Finance listed several reasons why the smart decision was to "Just Buy Nike Stock," including:
"Nike will likely benefit from more customers focusing on wellness, a likely increased casualization of fashion trends post the pandemic, continued execution of the company's differentiated retail strategy which should drive stronger sales and margins, the leveraging of its rich customer data and suite of apps to drive membership and demand globally, and as supply/demand remains extremely tight; limiting promotions."
On October 23, Motley Fool added:
"In the hyper-competitive apparel industry, the strength of a company's brand is everything. Fortunately for its shareholders, Nike is running circles around the competition in this category.
"Nike is a proven winner, thanks to its influential brand that's recognized all over the world. Excellence on the digital front will only strengthen consumers' connection with the business. This is still a great company to add to your portfolio."
Nike then rode out the rest of 2021 on a high note, firming up its influence in the digital sphere and planting its trademark flag in the metaverse; meanwhile in the physical world, NKE stayed within a basket toss of its record high.
In turn, from a "fundamental" perspective, Nike Inc. looked to be flying higher than Michael Jordan on the 3-point line.
But from an Elliott wave perspective, the stock looked bearish as they come. On December 16, 2021, our Trader's Classroom editor Jeffrey Kennedy showed this chart of Nike Inc. which counted five waves complete at the November 5 peak.
In Elliott wave terms, five waves in either direction is the hallmark of a complete impulse pattern. Here, the encyclopedic Elliott Wave Principle -- Key to Market Behavior takes the baton:
"In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4.
"The two interruptions are apparently a requisite for overall directional movement to occur."
(Pictured: A rising five-wave impulse)
A five-wave move must adhere to these 3 cardinal rules:
Wave 2 never moves beyond the start of wave 1
Wave 3 is never the shortest wave
Wave 4 never ends in the price territory of wave 1
Jeffrey's interest in Nike was calculated. In the December 16, 2021 Trader's Classroom, he prepared his subscribers for a significant turn in price:
"Part of the reason this issue caught my attention was because we can clearly come up with an impulsive wave count up from the 2020 low. I like this interpretation where we simply have 1-2-3, a pullback in 4, and a nice, clearly identifiable fifth wave move up into the high here.
"So, under this assessment, this is a very mature advance. The risk is to the downside all the way back to 125."
And, from there, Nike Inc. began its march lower, plummeting below 125 in May 2022 and continuing to fall before staging a small rebound into August. Then, on August 31, 2022, Trader's Classroom revisited Nike Inc. to warn the downside was still very much intact:
"We talked about this back in December 2021, believe it or not, and the focus was to the downside. And the reason was because from the 2020 low, we had waves 1-2-3-4-and 5. The initial focus was to come back down to this area of 125…
"Well, if we look at the smaller term price action, the move up is slow, choppy, contains numerous overlapping waves, is contained within parallel lines -- it has all the earmarks and characteristics of a countertrend move. So the selloff that began in late 2021 is still very much in force.
Wave patterns support the idea of further decline in Nike down to 92.20."
Once again, NKE resumed its slide, touching an intraday low of 92.96 on September 29 -- its lowest level in 2 years.
In the end, mainstream analysts can always tell you where they think a "Big Fat Egg" stock is headed. But often, they simple extend yesterday's trend into tomorrow.
To anticipate trend changes in the markets you follow, you must understand why they go up and down -- you must see the pattern. Our Trader's Classroom service is where education in pattern recognition meets opportunity for the world's leading ticker symbols.
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