Nike Earnings Beat Fails to Impress: Dow Jones Stock Slides in After-Hours

When Nike recently released an earnings report that was better than what the "experts" had projected, you would think that the stock market would go up, right?

Well, the stonk did… at first, but it fell as soon as after-hours trading started. This is excellently difficult. Was the news that Nike sold more sneakers and sportswear this past quarter than expected really "bad" news for the market? Maybe—some folks might be selling this positive news. Earnings are only one part of the picture. Other folks might be selling because… I'm not really sure.

The "down" doesn't stop with NKE (Nike's stock) alone. A mixed reaction like the one Nike got could possibly bring the Dow down with it (as well as any "long" outlooks for other indices). The very well-known company (and its stock) helps prop up the price of the DJI. What could be good news to some, turns out to be "bad" news all around. Naturally, the regular "buy the dip" investors began buying shares of different stocks all throughout the "fall". So far, the market in general has been going up, but I think I'll change my strategies again. This "Nike pattern strategy" seems like something more to study. Technically, I have never tried this in practice, but the news seems good… oh, well. Maybe I am flat broke.

Haha. If only my English professor knew the truth (as well as my psychiatrist).

Overview of Nike's Earnings Report

Nike posted some impressive numbers this last reporting period, with strong earnings per share (EPS) that mostly exceeded expectations—in short, there were no financial surprises. Following EPS, revenue growth was also strong, with some exciting narratives about growth in the footwear and apparel segments.

For the most part, management was straightforward in their explanations of the company’s dominant strategy. Almost anyone reading this material is aware that Nike has 1) expanded their brand’s coverage area, and 2) designed some brilliant internet sales presence. Hearing the executives explain the company’s adaptations in a global market was also interesting and useful. Those same notable persons also seemed to be committed to both ongoing 'environmentally friendly' projects and the company’s community-based outreach. All told, Nike is a competitive Fortune 300 growth company—and should continue to reprint similar financial numbers.

Market Reaction to Earnings

After significant news or earnings reports, there are sometimes sharp spikes in the immediate trading around Nike stock. I am particularly interested in these moves because they may provide some indication of future market direction.

The price action around any large company’s earnings or forecast is always of interest because the reasons that may cause that stock to move can likely be linked to many other stocks within the same industry. For example, if global shoe demand is high, Nike may trade higher after its earnings announc

Statement, which would be good for the market. On the other hand, if the average selling price is lower because of sports store shutdowns, Nike shares may fall as well as the broad market. But not the news that could potentially move its stock in the future hurts or is good for the market in the near term.

Analyzing the Dow Jones Response

The Dow Jones index is a general barometer for how the U.S. stock market is doing. If we follow the Dow and its trend – up or down – immediately after earnings, it’s as if we could take the "temperature" of what the market’s sentiment is. For instance, how do investors feel about consumer discretionary products? We might find out through a strong earnings report from Nike.

More people are shopping for their products, given the recent $5 eval, Nike could be experiencing stronger sales. A stronger brand could mean stronger retail, indicating increased sentiment in consumers who are willing to spend money. An interesting earnings day watch that could indicate a "down day" on the index. It’s insightful to witness how (in real time) "the [U.S.] market has been trying all day to get turned green – staying red." Seeing these connections within the transcripts might be confirmative of the cyclical sentiment hypotheses.

Technical Analysis of Dow Jones

Technical analysis has two basic concepts:

• The first is key support and resistance levels. At a core level, the idea is 'what is the price at which the market often turns around?' Above, the market moves up until it hits a ceiling and then eyes its next retrace lower. In effect, 'people simply aren’t prepared to pay more or this amount is what the market has taught me is a fair price.' It’s key support and resistance levels.

There will be points on the chart at which you will see price close (say it trades for a while at said price), it then trades lower and then moves back to this price history to see the trend lower. That’s a great example of how the smart money absorbs supply and where residual holders (and potentially some capitulation) send the price down. This establishes a point of resistance. To the downside, the market is being dictated by strong demand (or support) and no volume at any price. We call this level 'resistance.' Depending on where one anchors the line, this has been respected a few times.

Good traders watch support and resistance and make the very best decisions about where to both go in (/long and /short) and where to get out of profitable trades (if they’ve lost, then clearly they may have got these levels wrong or the market dynamic changed).

Of course, it’s not just historical price points that define the impact support and resistance have on a chart, but volume too. If you have a new prices pouring into (inflow/outflow of funds or momentum) — a chat to point out could be the number of times the price is rising faster than non-client flow.

• The second is being able to read the pattern, name the patterns being seen, and be able to ar

Tickulate the message from the market. To any technical and chart purist (which is different from a true quant), this is an absolute must-know. Head and should, or bottoms, flat-bases, cup and handles (with high volume on the right side of the cup), inverse (or not) head and shoulders and double tops … the list goes on. Again, it doesn’t matter what asset class is being traded but names, such as equities.

• With that in mind, it’s clearly not just about single assets, but about understanding the workings of the underlying indices. If you’re an equity trader, consider the index of that equity. You could consider the index on the ASX200 and see the index at the start and end of the quarter down for most of Asia, but the ASX200 is +6.2 percent. Most of you will see this in Super balance. This is a market that is underpinned by good will and solid demand. Remember this market is made up of only 150 or so stocks (and therefore has far less impact than a 4000 plus stock index like the Wilshire 5000) and can, and does get driven by three or four big names.

The various contributing factors to the index (as a trader) will tell me:

The relevance of support and resistance lines actually matters. Most times, levels of support are ignored when the market is very bearish and the index can add weight to price. Much of the retail buying is a result of aggressive corporate buying programs.

Fundamental Analysis of Nike's Position

Numerous economic factors come into play. Unemployment rates, inflation, and disposable income, for example, have a profound impact on the price of sportswear, with the bulk of spending taking place when the economy is doing well. Anything otherwise may trigger a shift in attitude toward footwear or activewear simply being unnecessary expenses. Furthermore, some investors gauge potential threats from competing companies against the backdrop of an intensifying price war between the three dominating sportswear and apparel companies: Nike, Adidas, and Under Armour. The fear is that similar brands pose a threat to the company both in the marketing and branding areas of the business and within its efforts toward innovating and shelling out new products for athletes. Nevertheless, indicators suggest global value chains, e.g., those accented by the industrial, commercialization, and procurement of apparel like athletic shoes and sportswear across national borders, are likely one of many contributors to the recent upsurge in Nike's numerous stocks. It's also a likely reason the value of the company's stock is projected to increase, as well.

Broader Market Context

Nike's earnings are a crucial test of the brand in this moment in the economy when consumer spending is fluctuating and inflation is a concern. As selective as people might be with their purchases at this time, if the Nike message is strong, it will be reflected in increased sales. Further, we can see what effect, if any, messaging is having on supply chain issues.

I also

Like to look at the effect of forex on Nike's numbers. The U.S. has had some movement against international currency pairings that could very well make a difference in the profit line on the income statement (Nike hedges, as we all do, but still…), and I have seen some research that has forex effects modeled into it. Personally, I like to get into notes on forex effects on operations, but that's just me; it isn't as though we will see a number on this in the income statement. You might simply decline the entire idea of messing about with forex effects on operations as being simply too hard.

Nike recently reported earnings that were ahead of expectations and you would think that would be a positive for the company’s outlook. But after that earnings report, the stock actually went down. The market’s reaction to earnings can be quite unpredictable. Even if a company is moving in the right direction financially, it doesn’t mean that everyone feels the same way. The general "market" is made of people who also feel the impact from other economic indicators, earnings at other companies, and geopolitical events.

For long-term individual stock investors, this is the case for doing some technical analysis in addition to fundamental analysis. Yes, get a sense of the company’s health and how things look with key earnings-related statistics. But, as you’re reading those and considering the Dow or another index, make sure you’re also looking at the company's stock’s price at a few different times and how it might compare to different high/low/average price points around earnings times. Even if you aren’t someone who’s into trading, the "technical" part of considering a stock is something to consider at various points. The Dow Jones and "stock market" are other general indicators that you should have on your radar as an investor. Conditions change and you probably want an idea of what to expect.