Why Contrarians Should Feast Their Eyes On Nike Inc (NKE)

Outperforming NKE remains a target of skeptics

Nov 26, 2014 at 11:09 AM
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Athletic apparel retailer Nike Inc (NYSE:NKE) has put in a strong performance on the charts in 2014, with the shares up more than 24% to trade at $97.77. This week alone, the equity has edged 0.4% higher, which shouldn't come as a surprise. In fact, according to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White, NKE has averaged a 2.2% return over the last 10 Thanksgiving weeks, and has been positive 90% of the time. Longer term, the equity could be poised to extend this momentum should skeptics both in and out of the options arena capitulate to its upward trajectory.

Daily Chart of NKE Since January 2014

In the options pits, speculators have been initiating long puts over calls at a near-annual-high clip over the past few months. Specifically, NKE's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.81 ranks in the bearishly skewed 96th annual percentile.

In recent weeks, however, traders have been switching sides, per the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 4.06, which ranks higher than 77% of similar readings taken in the past year. A continued capitulation by option players could translate into tailwinds for NKE.

Elsewhere on the Street, eight out of 19 covering analysts maintain a tepid "hold" rating toward a stock that's outperformed the broader S&P 500 Index (SPX) by more than 19 percentage points over the past three months. Plus, the consensus 12-month price target of $97.35 stands at a discount to current trading levels. Simply stated, the door is wide open for a round of upgrades and/or price-target hikes to help propel NKE higher.

One final note, short interest jumped 11.7% during the last two reporting periods -- a time frame in which shares of NKE surged roughly 12%, and tagged a series of higher highs along the way. The ability of Nike Inc (NYSE:NKE) to soar in the face of this selling pressure speaks volumes to the security's underlying strength.


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