Nike, Inc NKE gapped down 4% lower following its first-quarter earnings print Sept. 23. The company beat estimates but expects revenue growth to be flat to down for the second quarter.

For technical traders, Nike’s stock was set to fall regardless of news because the stock had set up a bear flag on the daily chart with the downwards pole created between Sept. 10 and Sept. 20 and the rising channel of the flag formed during the four days that followed.

The Nike Chart: Nike fell about 9% lower between Sept. 24 and Sept. 28, which was equal to the percentage length of the bear flag’s pole (the expected measured move). On Wednesday the stock bounced up about 1.75% higher and cleared Tuesday’s high-of-day.

Nike’s stock has two gaps that are close by and because gaps fill 90% of the time, it's likely the stock will trade into both ranges at some point in the future. Nike has a gap below that has been partly filled between about $134 and $145 and a gap above between the $151 and $158 levels.

Wednesday’s bullish move caused Nike’s relative strength index (RSI) to rise back up above the 30% level. On Tuesday the stock’s RSI fell to about 25%, which put it square into oversold territory. When a stock’s RSI drops below the 30% level, it's a buy signal for technical traders.

Nike is trading below the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending below the 21-day, both of which are bearish indicators. Nike is trading above the 200-day simple moving average (SMA), which indicates overall sentiment is bullish. On Tuesday the stock tested the level as support and bounced.

• Bulls want to see Nike rise up above a resistance level at $150 and regain the eight-day EMA to negate another possible bear flag pattern. If the stock can regain the levels as support, it has room to fill the gap.
• Bears want to see big bearish volume come in and drop Nike down below the 200-day SMA and a support level at $145, or for the stock to rise up slowly into an ascending channel to create a bear flag. Below the $145 level Nike has support at $139.

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