NKE gap down indicates surrender; expect short-term bounce to close gap and reach $35-$37 in ~1.5 months.

Let's focus on the Nike company chart. It's not encouraging. The stock hit its lowest level in 13 years this morning after earnings were announced late yesterday. It wasn't enough to impress Wall Street.

The company has not succeeded in convincing investors of this transformation strategy, especially given the weakness we are seeing in China, a key market where the company is struggling.

Mixed results, but generally disappointing for Nike. This was certainly not what investors wanted to see.

Analysts are responding to the general negativity and lack of evidence that the transformation is actually beginning to bear fruit. There are also other things on the table, such as the announcement of more layoffs and the new "Peace" plan, an all-out financial plan targeting about $2.5 billion in cumulative savings through fiscal year 2031 at a cost of $1 billion in pre-tax charges.

Most of them relate to employees. This will reduce the number of job roles at Nike. Elliott Hill issued a memo stating that he recognizes that this action creates uncertainty, and that he does not take that lightly.

But these layoffs will begin in 2027, and come after Nike already eliminated 800 warehouse jobs in January and about 1,400 administrative jobs in April.

As for the numbers, revenues reached $11.21 billion, a decrease of more than 4%. It came in lower than the estimates. Earnings amounted to 48 cents per share. That was slightly better than expected thanks to a wider overall margin.

But that wasn't enough after seeing Nike's decline throughout the year to boost investor confidence, Sam. They have been removed from the S&P 100 index after nearly 20 years in the index.

They have fallen by almost 50% since the beginning of the year.

As I mentioned, much of this weakness is concentrated in Greater China. Revenues there have decreased by 22%. They have seen a small amount of growth in the North American sector of 2%, which has helped to offset that, but it is lukewarm growth at best.

Net income also decreased by 2% compared to the previous year. Wells Fargo lowered its stock price target from $40 to $30. It is currently trading at $33.31. They have maintained an "equal-weight" rating.

They said that morale remained as weak as ever, but the first quarter was worse than expected. I mean, the ceiling of expectations was low, yet they did not exceed it.

The headwinds facing Jordan Sportswear in China are very strong and are causing profits and losses to plummet, and the outlook remains unclear. That's what Wells Fargo said.

Citi also lowered its target price for the stock from $39 to $32. They have maintained a "neutral" rating. They say the company announced results that exceeded expectations, but due to weak sales and improved spending.

They say that the sales forecast for fiscal year 2023, which is in the high double digits, falls short of the market consensus. And that Nike is turning into a "cost-cutting story". That's what City says.

Bank of America lowered its target price for the stock from $30 to $24. They have an "underperform" rating, and say the company's earnings report shows that visibility on sales recovery remains limited.

I also saw a note from Williams Trading downgrading Nike's rating from "buy" to "hold". They have a price target of $30 per share, down from $42.

They still believe that Nike is taking what they call appropriate steps to correct its business practices, but the problems are bigger than previously thought. I think this is the general theme, where there doesn't seem to be any real solution that is clear, at least from the point of view of the sales side.

There's a lot of talk about the upcoming Investor Day in November and what the company will say there, Sam. So it's a potential incentive for Nike in November.

Yes, it is interesting that they still have an insured member of the company at BTIG. I mean, they lowered the price target to $50, but they maintained a "buy" rating on the stock, as I mentioned when we were covering these earnings yesterday.

I mean, they still believe the market needs to be patient with this stock, and they are motivated by margin estimates that have already come in better than expected.

So, we are still waiting for that recovery, but as I said, they seem to still be willing to be patient with this "buy" rating. Thank you very much, Marley, for detailing all this information about the trade that has dropped by 5% to now be $33 and a few cents.

Well, Sam, looking at this gap today, I think this is an indication of surrender. This is my view of it this morning, you know, when you see gaps like this from the 35.5 level down, we traded lower to around 30.

We're now trying to maintain some stability here, but for me, this creates a short-term opportunity.

I think you'll see Nike close this gap in the next month and a half and try to move back up to the 35 to 37 level. Historically, when you see gaps like this, they do close, especially given the prevailing downtrend in the market as well.

I think the setup for today's trading examples is to buy the call spread to definitely limit the risk in this type of situation, but ultimately to catch a possible move to come back and close that gap.

This is an example of today's trading: the purchase price difference for November is between 32.5 and 37.5, around a price of $33. You can buy it for approximately $1.60 to $1.65.

The risk-to-reward ratio in this trading example is two to one.

Again, a specific risk. Therefore, if you experience additional weakness, you have a specific situation regarding setting up options. Again, I think there is an opportunity here, a higher opportunity, given the fact that this downward gap will close before the market realizes the possibility of further decline.

But at the same time, I still see the possibility in the medium term, over the next 49 or 50 days, to close the gap and return to the 35 to 37 range.