Can Stock Market Make Up Its Mind?

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Nike – A Falling Star

• Nike (NKE) used to be a great stock. 

• In 12 years, from the 2009 low to the 2021 high, it advanced from about 9 to 179, which is almost 1,900%.

• However, it already retraced more than 62% of that advance.

• It appears to be in a typical (A)-(B)-(C) correction in which wave (C) should be in five waves – so-called 3-3-5 correction.

• Should we try to catch a “falling knife”?

• The technical analysis suggests not.

• 10W EMA, 50W, 100W, and 200W moving averages (MAs) are trending down – The long-term trend is down.

• The Elliott Wave and Fibonacci analysis suggest that about 40, corresponding to the fib confluence in the red oval, would be a good target for NKE.

• An ideal (C)=(A) target is at 34.43.

• In my opinion, patience is required and an interesting opportunity may arise in about 1+ year time, provided NKE does not go out of business.

• NKE can be a candidate for a “shopping” list, with plenty of time for research.

Trading Algorithms

• A couple of days ago I ran into the trading algorithm shown in the figure below.

• Although simplistic, it captures important aspect of trading strategies. The trader needs to know the bigger trend and technical support and resistance levels.

• One example is to buy pullbacks to support levels in up trending markets.

• Or sell at resistance in downtrend markets.

• How to protect against failures? With a Stop Sell/Buy orders X% below/above support/resistance.

• One can certainly improve this strategy with additional tweaks. Some options are listed below.

• Look for confluence of technical support resistance/support and relevant moving averages (MAs), say 10D and 20D EMA for short-term trading and 50D, 100D, and 200D MAs for intermediate- and long-term trading.

• Confluence with Fibonacci retracement levels adds additional strength.

• Is there a plausible Elliott Wave pattern arguing for reversal at support/resistance.

• Do technical indicators such as RSI, MACD Price Oscillators and alike support a reversal.

• Do cycle support a reversal.

• That is about it. Not all traders can do all these techniques, but more indicators in agreement results generally in more reliable/accurate trades.

• What a profitable trader wants to achieve is more frequent wins then loses, and bigger percentage of gains then loses.

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• Consider following me on X (former Twitter) in addition to the newsletter, as I often post valuable information there in real time between the newsletters.

  • Do you remember my Quantum Computing stocks post a few days ago?

  • Well, it did not take long.

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