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stock trends

The stock: Nike Inc.

The trend

Worrisome U.S. economic metrics have been posted this summer, all confirming a disappointing economic recovery. Threatening fiscal uncertainty in Washington adds to the mix of high unemployment and a still-feeble housing market, resulting in a picture that does not look good for the average American. Consumer confidence reflects the malaise: The most recent reading of the Thomson Reuters/University of Michigan index of consumer sentiment has dipped to its lowest level since March of 2009.

Consumer stocks normally echo the gloom and doom represented by gauges of the prevailing consumer spending mood, but curiously they have maintained relative price performance over the past quarter. The three-month performance of S&P Consumer Cyclical index is in positive territory, outpacing the broader S&P 500 index by 3 per cent and trailing only the leading sector performance of defensive health care and utilities stocks over the period. Investors are evidently more hopeful about economic prospects than the consumers who ultimately feed this sector's cash flow.

Investors need to recognize that the bearish trend signals flowing from the Canadian stock market do not necessarily direct a complete move away from equities. The strength in consumer stocks indicates the market sees enough value in the sector to warrant a lot more confidence than American kitchen table conversations would indicate.

The trade

Nike Inc., a current stock pick, has revived a long-term bullish trend in the midst of a very disappointing U.S. economic recovery. Its shares have garnered rising price targets from analysts, including those at UBS and Citigroup.

Collapsing to a low of $76.53 in the spring, Nike's stock has staged a July comeback on upbeat guidance. Trend followers should like the conditions for further advances: The share price move this month took the stock to a 52-week high, past resistance that would have normally beaten back a stock in danger of losing a battle with overhanging selling pressure. Indeed, Nike's shares have outperformed the S&P 500 for six straight weeks - all against a backdrop of consumer pessimism. The current Stock Trends Bullish Crossover presents a new opportunity to capture gains in a positive price trend for this stock.

The upside

This stock was originally a Stock Trends pick back in June of 2009, when the market emerged from the recession. The renewal of Nike's bullish trend presents an opportunity to trade this stock's relative strength, an outcome that will take this stock above $100 if investor optimism proves wiser than consumer gloom. Certainly, this trade is predicated on continued relative price performance of consumer discretionary stocks.

The downside

Absent a full stock market retreat, trend traders would be cutting losses if Nike shares pealed back below the trend line at $84.

Skot Kortje has been analyzing stock market trends for 15 years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to