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Nike and Under Armour Caught in Retail Stock Slide

Nike (NKE) and Under Armour (UAA) are two big-name stocks caught up in this month's retail stock slide. We'll examine their charts in detail, but first an overview of the recent price declines in this sector.

As noted on Twitter earlier today, we are seeing major price deterioration in a number of retail stocks this week and in the month of December. 


No doubt, a part of that weakness may be tied to fears of taxes on imports from China and Mexico, given President-elect Donald Trump's decision to name economist Peter Navarro as head of a new White House National Trade Council. More on this from Reuters: 


"...U.S. President-elect Donald Trump named Peter Navarro, an economist who has urged a hard line on trade with China, to head a newly formed White House National Trade Council, the transition team said on Wednesday.

Navarro is an academic and one-time investment adviser who has authored a number of popular books and made a film describing China's threat to the U.S. economy as well as Beijing's desire to become the dominant economic and military power in Asia.

Trump's team praised Navarro in a statement as a "visionary" economist who would "develop trade policies that shrink our trade deficit, expand our growth, and help stop the exodus of jobs from our shores."

Trump, a Republican, made trade a centerpiece of his presidential campaign and railed against what he said were bad deals the United States had made with other countries. He has threatened to hit Mexico and China with high tariffs once he takes office on Jan. 20.
..."

The mood is hitting the share prices of retail giants Ralph Lauren (RL), Bed Bath and Beyond (BBBY), Macy's (M), Dollar Tree (DLTR), and Target (TGT). That same weakness is starting to show up in the price action of major retail ETFs RTH and XLY.

Nike (NKE) and its rival Under Armour (UAA) are two leaders in the sport apparel industry. These heavily-owned retail shares are trading on a similar path, as their charts will reveal.

Under Armour (UAA) shares peaked at $52.94 in September 2015, following a 5-year run from $3.25 a share in 2010, a 16-fold move. The monthly chart below shows the full extent of this move, and the recent decline, in arithmetic scale.

Under Armour stock price chart monthly


Having peaked in late 2015, UAA has since trended lower, making a series of lower highs and lower lows. The most recent decline took the stock to a 2-year low. Certainly not a bullish development, as noted on the weekly chart below.

Under Armour (UAA) weekly stock price chart


Nike (NKE) has also moved lower off its late 2015 highs above $67. The stock has steadily trended lower for over a year, with a current share price of $52.14. NKE enjoyed a very solid 4-fold run from $16 a share in 2010 to over $67 a share in 2015.   

Nike (NKE) weekly stock chart


With both stocks trending lower off their highs and setting new lows, rather than new highs, I'm inclined to take a bearish stance and avoid the pair. Of course, things can change for the better at any time, for either stock. In the shorter term, "bargain" hunters may step in to snap up some of the beaten-down retail names in hopes of selling for a profit on a bounce higher.

However, before I decide to buy UAA or NKE, I would expect to see some type of bottom formation or price basing action. I would then like to see the stock work higher off its lows and establish a new pattern of higher highs. This would be a signal that the stock is turning up out of its doldrums. Strong volume on any new advance would help confirm a positive change in trend. 

As a position trader focused on larger multi-week and multi-month moves, I want to find stocks that are set to trend higher. At present, neither of these sport apparel stocks fit that bill; they are fighting against the tide (downtrends). We want to buy stocks that are entering new uptrends or stocks that still have some gas in the tank to move higher. This puts the wind at our back, so to speak.

While many stocks and industries have benefited from the recent "Trump rally", retail shares have been quick to give back much (or all) of their gains. This is a red flag for the industry and for many of the individual retail stocks. For now, I will avoid the group and monitor for any potential standouts showing superior relative strength.

Disclosure: I have no current position in UAA, NKE, or any of the retail stocks and ETFs mentioned in this post. 

Related posts:

1. How to Buy Winning Stocks: William O'Neil Interview.

2.  Valeant (VRX): How to Avoid Disastrous Stock Declines.

3. Amazon Dominates as Retail Rivals Plunge. 

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