Nike stock gains ahead of Dow on Pershing Square position

Nike stock gains ahead of broad market indices.
Dow Jones flat alonside rest of equity market.
Michigan Consumer Sentiment arrived ahead of conensus.
Bill Ackman now owns more than 3 million shares of Nike.

Nike (NKE) is gaining on Friday as the general market drifts sideways. The sneaker mainstay and athletic brand is getting a sudden lift this week as news surfaced that hedge funder Bill Ackman’s Pershing Square Capital Management had taken a stake.

Besides Ackman’s high profile from days of yore when he was an active short-seller, the Nike stock purchase is big news since Ackman is well-known for his focused portfolios. Nike stock is now just one of 10 positions in the hedge fund’s portfolio.

The market is still digesting Thursday’s swift gains on the back of lower Consumer Price Index (CPI) inflation data. Friday’s preliminary Michigan Consumer Sentiment Index arrived at 67.8, an impressive expansion above the of 66.9 consensus, showing that US consumers are turning more optimistic by the day.

Dow Jones adds another 100 points on Friday stretch

Nike stock news

In the 13F filing reported on Wednesday, Pershing Square Capital Management bought 3.04 million shares of Nike stock during the second quarter, which ended on June 30. This position now makes up 2.17% of the portfolio, but Ackman is known for steadily increasing his small number of positions over multiple quarters. So it is unlikely that he is finished.

Ackman had been a previous investor in Nike shares when he owned a little less than 6 million shares in late 2017, exiting the position for a gain north of $100 million.

The only other stocks that Ackman’s fund purchased in Q2 was Brookfield Corporation (BN) and Seaport Entertainment Group (SEG), as well as adding to its longtime Quality Brands International (QSR) holding. Additionally, Pershing Square reduced stakes in Chipotle Mexican Grill (CMG), Hilton Worldwide (HLT), Canadian Pacific Railway (CP) and Alphabet (GOOGL, GOOG). Chipotle, Restaurant Brands and Hilton Worldwide still comprise more than half of the entire portfolio.

The news comes as other analysts have taken a keen interest in the footwear maker. Williams Trading and Evercore ISI both had positive things to say in recent days. The former applauded the rehiring of Tom Peddie as the head of US wholesale, while the latter said Nike had likely reached a bottom after experiencing a poor market cycle.

"Based on our extensive channel work, we think Nike has started to take many of the early steps necessary to execute a turnaround," said Evercore ISI’s Michael Binetti.

BMO Capital Markets placed Nike on its list of 28 leading high-quality stocks earlier this week.

Dow Jones FAQs

What is the Dow Jones?

The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.

What factors impact the Dow Jones Industrial Average?

Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.

What is Dow Theory?

Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.

How can I trade the DJIA?

There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.

Nike stock forecast

Nike was down about 35% YTD before this week. Now that shares have jumped from the low $70s to the low $80s, everyone is suddenly excited. NKE stock is now above the 50-day Simple Moving Average (SMA) for the first time since late June.

The real test will be if Nike shares can overcome the $89 level, which had acted as support back in April. After that comes the 200-day SMA near $96. Long-term support from this summer sits at $71.

NKE daily stock forecast

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