Nike (NKE) won't solve all the issues in the market with a good report Tuesday after the close, but it may give a boost to some ailing retail names and address tariff concerns as they relate to retail. This is also a name with a strong presence in China. Nike disappointed last quarter although analysts have been skewed toward in-line or slightly positive expectations for this quarter. The reaction is anyone's guess though. Markets are struggling today with former momentum names (recent IPO, cloud, streaming) all getting hit very hard. Cannabis is also out of favor after a small bounce.
Can Nike turn the tide?
I think that's the wrong question. Even asking what Nike will do in reaction to earnings is the wrong question. The stock has flashed enough volatility across the past two-plus years of post-earnings trading action that going short volatility carries too much risk. On the flip side, there have been a handful of times when the stock has basically ended unchanged after reporting earnings, so going long volatility is difficult. What that means for us is we may be better off examining the concept of a post-earnings trade.
After scrolling through the past couple of years of post-earnings trading, the most appealing strategy is long volatility at the close of trading the first day post-earnings, which would be tomorrow, Wednesday. The targeted time frame is 21 days, so the October 18 expiration cycle places us closest to that time frame. Currently, the straddle for October 18th is priced at 6.2%, but this should drop tomorrow after earnings. Should this fall to 4.5% or below, then I would consider going long a straddle on Nike tomorrow at the close using the closest strike to the stock price and rounding down. For instance, if the stock closed at $86.12, then I would use the $86 straddle.
In terms of the chart, a close over $89 this week should bring momentum buyers into shares. I would anticipate a quick pop to $95 with follow-through to $100. Traders love big, round numbers. On the downside, we want to watch $82. Failure to hold there puts $77 in play with $72 as probably worst case. I don't see that much weakness on the table, but it still must be noted.
Be careful out there today.
If you are an immediate earnings trader, I'd expect Nike to be volatile in the after hours with several whipsaw moves given the trading in the overall market today. Volume should be heavy initially, but if the trade begins to go against you, you have to worry about the "winning" side leaning hard. This is a day to really be cognizant of your position sizing. Keep it small and comfortable.