Getting Long in the Context of a Pullback – Nike and Under Armour
- Posted by Greg Harmon
- on April 3rd, 2013
I’m sure some are calling me a uber-bull but the truth is I am bullish because I see the trend higher, and will continue to lean that way until it look differently. When it changes I will change as well. This can lead to some consternation though when a possible pullback appears during the uptrend. One easy way to deal with it is to sit back and watch until the pullback is finished. But the problem with that is that this is a market of stocks and they do not all follow the indexes. One example of that dilemma that faces me front and center right now is with the athletic apparel companies. Athletic apparel companies (of the non-see-through variety) have been strong and continue to look so despite the down day Wednesday and the longer 3 day pullback in the the small caps. Take a look at Nike, $NKE and Under Armour, $UA.
Nike, $NKE, gapped higher after earnings and has been consolidating since. The consolidation has brought it back into the Bollinger bands and helps work off a technically overbought condition on the Relative Strength Index (RSI). The Moving Average Convergence Divergence indicator (MACD) is just starting to rollover. It is nearing its 3-box reversal Point and Figure chart (PnF) Price Objective at 61 and the Potential Reversal Zone (PRZ) from the bearish crab between 63.92 and 65.49. How can you play this? One way is to look at the support area below between 53 and 55. If you are comfortable owning the stock there then you can start your entry by selling the May 55 Puts (bid at 41 cents late Wednesday) for a portion of a position. If you are afraid of missing the upside break despite a market pullback, use some of those sale proceeds to buy the April 62.5 Call (9 cents). In this way you have long exposure with a credit in your pocket and a possible entry 7% lower.
Under Armour, $UA
Under Armour, $UA, has been reversing the channel lower, moving higher through out March. It may also be accelerating that move as it tries to break the rising channel. With resistance next at 55.20 and then 58 and 60.20 there could be a lot of upside left. Support lower can be seen at the thick volume at price bars between 47 and 51. Again if you are comfortable with that support you can start a long exposure by selling the May 47.50 Puts (65 cents) for a partial position. This gives you a cash credit and a potential entry at a price 12% lower. If you do not want to miss the upside then add a May 57.5/60 Call Spread (55 cents) to capture that and still maintain a credit in pocket.
Both of these are examples of how to gain long exposure at a comfortable risk level, and not worry about that gap down that can wreak havoc to a long stock position with a stop. These are the types of trades offered in the subscription service every week, along side straight stock trades.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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