Are Nike Inc, Under Armour Inc Bound for a Third-Quarter Breakout?

Retail stocks Nike Inc (NYSE:NKE) and Under Armour Inc (NYSE:UA) have historically been among the best third-quarter stocks on the SPX

Jul 6, 2016 at 12:09 PM
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The third quarter recently kicked off when June turned to July. This prompted us last week to look at some seasonal stock market trends, including July's historical outperformers and underperformers. Today, we'll broaden our focus by looking at the best third-quarter stocks on the S&P 500 Index (SPX) over the past decade. Among the standout stocks are athletic apparel rivals Nike Inc (NYSE:NKE) and Under Armour Inc (NYSE:UA). Below is the full list, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White.

best 3q stocks july 6

As you can see, NKE has been nothing short of impressive, advancing during the third quarter in nine of the past 10 years. On average, the stock has soared over 11% during the three-month period. Not far behind is UA, which has been positive in 80% of the third quarters over the last decade. In fact, its typical quarterly gain is an even more astounding 17.8%.

If the retail stocks can duplicate those average performances, shareholders will be relieved. Both NKE and UA have taken it on the chin in 2016. Starting with NKE, the stock has lost 11.5% year-to-date at $55.30, and is currently battling overhead resistance at its descending 50-day moving average. Amid these struggles, analysts have seemingly thrown in the towel on the shares.

While Nike Inc shareholders are hoping for the best, options traders have been bracing for the worst. During the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.25 puts for every call. The corresponding put/call volume ratio ranks just 2 percentage points from an annual peak. Of course, it's also possible that some of these puts were picked up by NKE shareholders to act as downside protection.

Shifting our attention to UA, the stock has surrendered 5% year-to-date at $39.59. Additionally, the shares have been struggling at the round $40 level, home to their post-bull gap lows from late January -- hinting at potential double-barreled resistance. Possibly reinforcing this overhead speed bump is peak front-month open interest at the July 40 call, where roughly 12,300 contracts reside.

Speaking of calls, they've been the options of choice among Under Armour Inc traders. During the past 50 days at the ISE, CBOE, and PHLX, speculators have bought to open 1.63 calls for every put -- a ratio surpassed by just 8% of readings in the prior year. Not every call buyer is necessarily a bull, though. With short interest accounting for more than a week's worth of trading activity, at UA's daily average volumes, it's possible short sellers have been hedging their bets with protective calls.

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