NKE: Stockwatch

This week we are going to be watching Nike. Nike is something I like to call a 'darling stock'. That is, its performance does not warrant its strong climb. People think its a great stock, and that's enough for people. Yes, it did land a big contract with the NBA earlier this month. Lets take a look at the chart of this stock and its happenings:

There are several things happening with this stock. First of all, the day after the previous quarters earnings announcement there was a big gap jump up in the price of the stock. So much so that it was unwarranted. The stock beat the street guess, but just by a few cents. But that was good enough for the public, because NKE is a darling stock. People were enthused and jumped it the next day and its shot up. Then the public came to their senses and realized, hey, those earnings weren't THAT spectacular, then look at the chart inside the rectangle area: the stock dropped and went down to its proper valuation. This is where it is possible to make money as a contrarian. When the crowds act irrationally, here greed is shown. Short the greed. Lets look at the analysts predictions:

Nothing really to write home about. Inside the big rectangle, you can see how the current quarter is not so good compared to the industry and sector benchmarks. This says lukewarm. Now go up and look at the last three out of four quarters. No big pops or surprises. Kind of like opening up a gift and seeing a big pack of underwear. "Oh. Thanks."
Yet the stock continues to pull up hard. Darling Stock. I had originally planned on shorting this thing the day before earnings but then I got to know the stock. Wine and dine it. See what its about. Look and at its charts, its past history.
Here is what I think is going to happen. This stock is going to report a fairly good report, beat the street estimates by 5-6 percent and the stock is going to jump up especially with the NBA contract from earlier in the month in investors minds. The RATIO of the more milder the earnings: the severity of the jump will have us putting a put on the stock as the stock then wanders back down to its correct valuation.
Of course there are variables...Greece, continued pulling in price, and a sudden really good earnings that beats the street by 20% or more. Any of this goes down, our attention will wander elsewhere for another opp. However, if this stock has a mild earnings, a slight surprise and a too big of jump afterwards, it will be ripe for the contrarian put.

Hang tight tomorrow people. It will be a crazy day as we see what kind of deal Greece and its creditors hammer out, if any.
I will be watching the markets in the morning and will make any updates as is appropriate. Anything that jumps out at me, I will share it in turn with you.

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