Earnings season is about to get into full swing in the weeks ahead.
But one of the earlier looks we get at how things could go, is retail giant Nike (NYSE: NKE).
See, earnings season is like having Christmas four times a year.
Traders live for this stuff.
Major trends are made or broke during this pivotal period for each individual stock.
Nike was just the latest example.
I mean, shares have struggled for many stocks this year. Nike was down 45% before earnings last week.
To say it was oversold going into the announcement is an understatement.
Shares were already below that key June level that the broad market keeps battling over.
If Nike is any indication, it is telling us more stocks are about to go through a similar tumble.
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Nike’s Plunge!
For starters, Nike just tipped us off to the biggest trend this earnings season for retail outlets – inventory gluts.
It crushed Nike to have an influx of inventory as shipping bottlenecks have eased in 2022, just in time for a recession to hit and consumer spending to slow.
It’s not negative yet. But the strong buying pressures after the pandemic that helped spur inflation has peaked and it is bad news for retailers.
The only way for companies to move inventories with stubborn consumers is to markdown prices. That’s great for consumers, but hurts the bottom and top lines of companies stuck in this situation.
Nike shares dropped over 10% on the weak earnings report, but as you can see on the chart, broke below a last line of support.
This is the same spot hundreds of companies are in.
They are trading below those June lows, that the market still is trying to hang on to, but also have no true support levels on the way down.
If there was going to be a flush in this market, where major indexes plunge 10% in a week, this is it.
This is the level.
Yesterday’s rally could hold for a bit. I’m not calling for a plunge this week in stocks.
I’m just saying the longer we stay around this level, the more likely it becomes that another major drop is on the way.
And Nike was your early warning of what was on the way.
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It