It’s always interesting to see expectations meet with reality. Those that have unrealistic or highly improbable hopes are typically disappointed in serial fashion. How do you set your expectations with stocks and the market they make up? What structure is there that could help guide these expectations and then adjust them “on the fly,” as it were, given the dynamic nature of the markets?
Let’s discuss one specific feature we provide for members each and every earnings season on literally hundreds of stocks, and then zoom in to what we were projecting for NIKE, Inc. (NYSE:NKE) on the day before their last earnings announcement. Then, we’ll use this information to project what is most likely going forward.
What Were We Projecting For NKE Pre-Earnings?
We have the benefit of an easy look-back via historical time and date-stamped posts to all of our members. Here’s the last update by Zac Mannes just before NKE would report earnings a few weeks ago:
by Zac Mannes – StockWaves
Note that the structure of price was telling us the most probable expectation would be the start of a third wave down in a larger correction. Reality then manifested itself with a strong gap down, and price has continued to follow the projection shown pre-earnings. What should we expect going forward? Let’s first get a bit more rounded commentary with Lyn Alden regarding the fundamental landscape of the moment.
Fundamental Commentary With Lyn Alden
“(NKE) is a very good company with a very good balance sheet as well, but is a nice case study to show that investors can’t just pay anything for a good company. At its peak in 2021, NKE was trading for a price/earnings ratio of approximately 50x, but didn’t have anywhere near enough growth to justify such a lofty valuation.
by Lyn Alden – FastGraphs
I’m no longer bearish on the stock after its major correction. However, I still don’t exactly like the risk/reward either, at least compared to other alternatives on the market. The company is facing growth pressure globally, which would be fine at a lower valuation but spells trouble for a stock that is still trading at 30x earnings and that therefore has significant growth priced into it. I would like to see more consolidation or correction before I consider it to be any sort of high-conviction long opportunity.” – Lyn Alden.
The Probable Path Forward Via Projection Of Sentiment
Let’s look at the chart after the post-earnings “swoosh” down.
by Zac Mannes – StockWaves
Price appears to be validating the projected path as illustrated prior to their earnings announcement. Many times there can be catalysts that seem to accelerate what was already plotted on the charts. However, time and again we have observed that price will still seek optimal levels inside the Fibonacci Pinball structure.
It is this very structure that we use as an overlay to Elliott Wave Theory. In the case of NKE, it is telling us that we should ultimately anticipate a move down to the $68 – $75 region in wave [3] of the larger Primary C wave correction.
Optimally it would be at the 1.382 extension of the wave [1]-[2] projection which comes in at $71.42. The subwaves inside this wave [3], A-B-C, will help further clarify and more accurately project where wave [3] should finally complete. For now, we are yet in the A of [3] that likely will finish in $84 – $92 region.
Why are the subwaves divided into A-B-C in this instance? Because all indications are that this larger Primary Wave C correction will shape up as a diagonal. Therefore, all of the subwaves will be A-B-C in their structure and should point to the 1.618 – 1.764 extension of the initial wave [1]-[2] down from the top marked Primary B at $132 back in early 2023.
Should price rise above the prior swing high of $123, then this Sell setup would officially invalidate and we would reassess our forward-looking projection accordingly.
This projection pre-earnings is not a one-off event for us and our members. It is something that we consistently do season after season and on a daily basis in real time.
Past Performance Is No Guarantee Of Future Results
This is a common disclaimer used in financial prospectus. And, of course, it’s an important reminder. As well, in our work, we provide probabilities and the most likely path forward that we’re able to identify.
But, it’s also a basic tenet of Elliott Wave Theory, when correctly applied, that the past structure of price is exactly what points to what will likely happen next. So, in a way, past performance is precisely what we use to provide probabilities and targets.
Remember that we arrive at targets both short and longer term by taking advantage of the repeating fractal nature of the markets. It’s these structures that unfold in a predictable manner that allows for this.
Now, before you claim heresy or hogwash, take the requisite time to understand what we are presenting and have a look at our track record. All of this information is available to the readership in past articles. For a quick start, perhaps begin here.
Don’t Be Turned Off By Misapplication Of This Methodology
Obtaining a true understanding of this methodology takes time and effort. For those willing to invest in said effort, it pays off immensely. Those who are turned off by the words “Elliott Wave” typically have come across those who misapply the theory or are not willing to devote the requisite energies needed.
Our methodology is pointing to a low-risk, high-reward setup for Nike, Inc. stock. Not all paths will play out as illustrated. We view the markets from a probabilistic standpoint. But at the same time, we have specific levels to indicate when it’s time to step aside or even change our stance and shift our weight.
There are many ways to analyze and track stocks and the market they form. Some are more consistent than others. For us, this method has proved the most reliable and keeps us on the right side of the trade much more often than not. Nothing is perfect in this world, but for those looking to open their eyes to a new universe of trading and investing, why not consider studying this further? It may just be one of the most illuminating projects you undertake.
(Housekeeping Matters)
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