Here’s your trade on Nike ($NKE) – September 30, 2022
NKE FDX
I want to look at Nike ( NYSE: NKE ) today. Apparently, they’ve got a lot of shoes on the shelf. Maybe the Air Jordans just aren’t what they used to be or whatever the current deal is. We’ve got Bollinger Bands that are supposed to contain, I think, 91 percent of the market action, it might even be higher than that.
They are supposed to contain the vast majority of market closes. These are only based on closing prices and you can see, with very, very few exceptions, the stock closes within these Bollinger Bands and obviously, they are reactive. They react and they are weighted so that any movement in the stock will quickly be reflected in these bands.
So as the stock moves down, for example, the bands are going to expand downward. The lower band will, they both will because they are 2 standard deviations away from the middle Bollinger Band, which would be the 20-day moving average (not shown). Then as the stock goes down and the lower band expands to contain it, the upper band is also going to run away from it because the distance between the two has to be the same.
The same thing here, this band is close, this band is close because the stock is trading in a really low range. Okay, the stock falls out of bed here, what happens? The band is flat, the band is flat, and then as it gets going the lower band stretches down. And because the stock is drifting down so fast the upper band doesn’t have to do anything. But it is still equidistant all the time.
That is kind of Dan’s brief summary of Bollinger Bands. But this is what you need to know, this is 2 standard deviations. If it is 3 standard deviations it’s like a felony, it could be a life sentence for that matter, no cash bail though. When a stock hits 3 standard deviations it is just, virtually, guaranteed that the next day is going to be a move back into the trading range.
I will show you a little fly in the ointment in a second. And so as we look at this stock, you could have a trade setup on Monday. The cool thing is that the stock closed at 83.12 and the low was 82.50. You can be trading this on Monday with a stop just a little bit below 82.50 because you are trading the bounce. So if the stock continues down then you don’t want to be in because there is no bounce, there is a trounce so you get out of there.
One of the things that could possibly happen, though, on Monday because I have seen this a lot is, the stock gaps down. There is more selling, people get home, they see what happened to their Nike ( NYSE: NKE ) and they are going, oh crap, I am going to wear flip-flops for a while. And so they sell the stock. The stock gaps down on Monday and then it runs higher.
I don’t know if that is going to happen, but here’s your trade. If the stock opens up right around here and you want to see if can take this for a ride, then you put a stop just a little bit below today’s intraday low. If the stock, instead gaps down, then you only want to be long the stock if it trades back above today’s opening print, which is 83.60. Those are 2 ways you can trade this stock. Or the 3rd way is to do nothing and just watch the stock.
One thing you want to keep in mind. FedEx ( NYSE: FDX ) had a very similar thing here and it did, in fact, trade back within the Bollinger Band complex for like a day. It went up just a little bit and then the stock continued to come down. So this 3 standard deviation trade is not a sure thing. It is just an indication of a super, super oversold stock, where the rubber band is stretched really, really tight, and that sets it up for some kind of a rebound.
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