by Geoffrey A. Smith, DTI’s Chief Instructor
Football season is here just around the corner. College football will start over Labor Day weekend and professional football starts a week later. With the onslaught of all the fans comes the game apparel and various knickknacks that accompany them to the games or the living room. So how do traders take advantage of a seasonal event like football? One way is to look at who sells the game apparel, like Nike (NKE) and Under Armour (UA). These are the symbols you see on jerseys, hats, and shoes throughout the fall season. Looking at these stocks on a seasonal basis, we find that each has a tendency to move higher in the early fall. Look at the two seasonal tables below. Notice that Under Armour starts heading higher in May, while Nike starts its move in September. Both move higher into November with Nike picking up about 8% and Under Armour picking up about 7%.
Both are in a steady uptrend after the World Cup (the US women won the World Cup this year in soccer – Go Team!) and should continue their trend for the next couple of months, barring any unforeseen global events or poor earnings announcements. Below are two daily charts of Nike (top) and Under Armour (bottom), with 3-day (red), 21-day (blue), and 65-day (amber) simple moving averages. Notice both are riding on their 21-day average and are above the 65-day average.
You can either look to buy the stock, or maybe buy the November 115 call in Nike or the November 100 call in Under Armour with expectation for both pushing higher. These are at the money calls that should hold their value fairly well. If they close below their 65 day averages, look to exit to minimize loss. Under Armour seems to be the stronger of the two at this point and closer to its highs, but there is less risk in Nike moving down to the 65-day average.
Good luck trading!