Nike Swoons as Lululemon Soars

Late in the day on Friday, shares of Nike Inc. (NYSE: NKE) were trading with neutral, 7 out of 10 ratings, courtesy of a one-point ratings upgrade earned early in the session. And if sellers remain as aggressive on Monday as they were on the final trading day of the week, then there may be further ratings upgrades to come.

Nike has now closed lower for three out of the past four trading days, pulling back to technically oversold territory as part of a profit-taking process that began in the wake of the stock’s rally to new, 52-week highs at the beginning of the week. Off by more than 3% on Friday alone, shares of NKE are down nearly four and a half percent from those annual highs, and retreated to new, two-week lows for the first time this year.

Could Nike have further to fall? With a short-term positive edge of more than three-quarters of a percent, Nike may already be attracting the attention of aggressive short-term traders (and their strategies of buying the milder, more shallow pullbacks). Shares of Nike have not closed in technically oversold territory since December, and traders who have been anxious for an opportunity to buy historic weakness in the stock have have precious few opportunities in recent weeks and months to do so.

It is also worth noting that even though a 7 out of 10 rating is a neutral rating for all stocks, the relatively lighter volatility of a blue chip stock like Nike has meant that pullbacks and corrections have had to be particularly severe in order to get a rating much higher than 6 in the stock. Note that Nike has not earned a rating above 6 since the middle of December, when a trio of 7 out of 10 ratings signalled the beginning of a rally that took NKE higher by more than four and a half percent over the following five trading days.

Another athletic apparel stock for traders to keep an eye on is Lululemon Atletica (NASDAQ: LULU). While Nike has been pulling back, shares of LULU are still pressing deeper into short-term overbought territory, and setting new, 52-week highs repeatedly over the several days. As such, it is no surprise to see that the stock earned “consider avoiding” ratings of 3 out of 10 ahead of Friday’s open and is set to maintain those low ratings through Friday’s close.

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David Penn is Editor in Chief of TradingMarkets.com

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