Earnings preview: Can Nike keep its lead ahead of the pack?

Sprinting into the earnings confessional tomorrow after the closing bell sounds is Nike Inc. (NYSE: NKE), the ubiquitous maker of stylish kicks and apparel for fitness-and-fashion-minded folks. According to Briefing.com, analysts with Reuters are expecting the king of the "swoosh" to bank 85 cents per share in its fourth quarter; analysts polled by Zacks expect 86 cents; both projections exceed year-ago estimates of 69 cents per share.

Technically speaking, Nike has been in rally mode since last August, gaining more than 45% in slightly more than 10 months. The stock has benefited from support at its 10-week and 20-week moving averages; while last week's broad-market pullback dropped the stock below these short-term trendlines, Nike has risen 3% today to retake control of these supportive averages.

My mentor Bernie Schaeffer has taught me to always gauge investor and analyst expectations ahead of an earnings release, as inflated expectations can lead to a disappointing reaction following the report. It seems as though optimism is running fairly high on the footwear retailer. Options players are showing a preference for call positions, which means a sense of bullishness, especially among short-term speculative players. Short interest is low -- the latest numbers show a short-interest ratio of just 2.1 days to cover despite a 19% jump in NKE shorted shares. Finally, analysts are already favoring the bullish camp. Recent Zacks data indicates six "buy" ratings and two "holds," leaving precious little room for upgrades.

It is true that Nike's recent uptrend provides some justification for this optimism. But when expectations are bloated, there is the concern that earnings will not be well received, even if they manage to match or exceed analysts' estimates.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.