Part 2

Nike Inc. (NKE)


Company background and financial performance

Our next stock pick from the XLY for the month of March is Nike Inc. (NKE), which plays an important role with its 5% weight within the leading ETF.

Founded back in 1967, Nike Inc. is a leading American multinational corporation engaged in the business of designing, developing, as well as marketing athletic footwear, equipment and accessories, apparel and other services for men, women and children around the globe. The company has got an extremely strong brand and market positioning thanks to its huge portfolio, including Nike Pro, Nike+, Nike Golf, as well as Air Jordan, offering premium, high-quality products, following the latest customer trends on a global basis. Therefore, Nike has been a global leader in the sector it operates in over 160 countries now.

By looking at the company’s financial performance, we shall say that Nike did a great job in the 3rd and 4th quarters of 2020, reporting very strong figures and beating analysts’ earnings expectations. In fact, we need to mention that this happened during the heavy pandemic times and the global economic slowdown that the world is still living in. Overall, Nike keeps performing quite well even during the coronavirus pandemic and we would be also looking closely at the upcoming Q1 2021 financial results. Nike is expected to report its Q1 earnings on the 18th of March and the expectations are for $0.75 per share while the company delivered $0.78 per share in the same quarter last year. By taking into account the strong results in the past few quarters, we remain positive for the company’s performance in this first quarter now and believe that would give us a chance to buy the stock ahead of the report and make high profits to the upside after a potential earnings’ beat.


Technical analysis

By looking at the daily chart, one could see the massive uptrend that took place in the past 12 months. The price bottomed out from the $60 lows on the 20th of March and restarted its strong uptrend to reach the $147 highs in February 2021. Since then, we have seen the price trading in a range between $147 and the strong support at $131-$132. In other words, the $147 has been the strong resistance where lots of selling pressure has been taking place, while traders and investors have been actively buying at the lower end of the channel and the strong support at $131-$132. In fact, the price has been failing to break that strong support since the end of January. Every time the price got there lots of buying pressure followed and the stock rose back up straight away. Moreover, the lower Bollinger band matches perfectly with the key support mark at that point, while the RSI, Stochastics and MACD indicators have already crossed up in the oversold territory, giving further bullish indications. The price is currently trading at around $137 and we would prefer to wait for a short-term correction and start buying the stock once it gets a bit closer to the support.


Chart: NKE

We will wait until the price gets a bit closer to the support at $131 and start buying at around $133-$134. In case it drops further in the short-term we would be looking to buy some more at the next strong support at $120 where more buying pressure is expected. Our first take-profit target is set at $138-$140, followed by the next target at $148-$153 where we would be fully cashing in our profits



Microsoft Corp. (MSFT)

Company background and financial performance

Our next stock-pick from the SPY for this month is Microsoft (MSFT). The company has been a global leader in the technological sector for many years now. By looking at the past 5 years’ performance, we shall say the company has kept on growing its sales and profits, beating analysts’ expectations and boosting investors’ profits.

Microsoft has been maintaining a strong market positioning in the sector it operates for many years and is currently boosted also by its robust commercial business and its cloud-computing service Azure, as well as by its expanding customer base. Furthermore, the company keeps on expanding its user base of Office 365 and Dynamics, whose results are also very encouraging.

The company’s subscriber base has been improving Microsoft’s competitive edge in the enterprise communication market against Slack and Zoom. Going back to early last year when the coronavirus came around, Microsoft’s officials logically got worried about the company’s future performance, due to the expected economic slowdown around the world and the possible downside effect on its financial performance. Yet, the company didn’t only meet analysts’ expectations but managed to report better than expected results and surprised the market in 2020. In fact, Microsoft has beaten analysts’ expectations in all 4 quarters last year during the heavy pandemic times, proving that its market positioning and financial performance is rock solid and the company could perform well even such tough times on the market.

The Q4 earnings came out at $2.03 per share versus the $1.64 expected by analysts. The company is expected to deliver its Q1 2021 earnings on the 5th of May and the expectations are for $1.76 per share, while the company delivered $1.40 per share in the Q1 of last year. In case it beats analysts’ estimates again we would expect the share price to rise strongly again after the report.

Yet, we wouldn’t wait until the 5th of May simply because the market is driven by expectations and traders and investors are expected to buy the stock ahead of the report in early May and that would lead to a bullish movement before the actual results come out.


Technical analysis

By looking at the daily chart of MSFT, we could see the massive uptrend that has been going on the chart in the past year. The stock bottomed out from the $47 lows on the 20th of March when the whole market started rising after the coronavirus correction, to break a few key resistance levels to the upside, such as the $66, $80 and $90 to reach the current highs at $95. In other words, the stock has more than doubled in the past 12 months based on the company’s strong financial performance and market positioning. All short-term profit-taking corrections have been giving great opportunities for traders and investors to start buying the stock at a strong support line and follow the huge bullish trend ever since.

The daily chart shows the strong support (broken resistance) at $90 where lots of buying pressure is expected to take place. Should the price break that level to the downside, we would be expecting more buying interest at the next key support marks at $87 and $82. In other words, we are expecting to see the price reverse back to the upside from one of those levels.

By looking at the technical indicators, we could see that the lower Bollinger band match with the 100-day moving average that stands at $87, confirming our bullish stance at that support level. Therefore, we would prefer to wait for a bit of a profit-taking correction before we start buying the stock at those levels.


Chart: MSFT

We would wait for a short-term pullback from those high levels and start buying aggressively at around $91-$92, just above the support at $90. If the price drops further in the short-term we would be interested in adding more to our buy positions at the next key support levels at $87 and $82 that would give us a chance to improve our average price and further maximize our profitability to the upside.
Our initial profit-taking target is set at $98-$100, followed by the next target at $110-$115 where we would be fully cashing in our profits.





Sincerely,

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