By Pinchas Cohen
In an effort to fight what many have considered the dying retail industry, Macy’s Inc (NYSE:M) has demonstrated it will stop at nothing to save its brand by deciding to close 100 stores and focus on its digital retail. Analysts are particularly concerned that Macy’s beauty product promotions would hurt corporate results.
Analysts expect that declines in profits and revenues continued in the second-quarter, with sales expected to fall 6 percent to $5.52 billion with an 8 percent YoY EPS fall from $0.54 to $0.46.
Investors worry about three items: a depressed stock price, continuous store closings and a disappointing shopping experience.
Ironically, the first two may actually be reasons to invest. An underperforming stock has a higher probability to rise and Macy’s closing shops in favor of its digital store is following the examples of Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) in acclimating its business to the internet age.
Macy’s stock price more than halved in value from its November 11, 2016 level of $45.41, and lost nearly three-quarters of its value from its June 17, 2015, $73.61 all-time-high to its June 11, $20.85 low. However, it’s trading pattern since May 12 suggests a Rounding Bottom.
Of course, one can call it a multiple H&S bottom, in which the June 11, $20.85 low is the head. The difference is academic, from a forecasting perspective – all that matters is that the $25 reversaline, or neckline, is decisively overcome.
Note that the price remained for ten days, finding support above the 50 dma (green), for the first time since the same November from which it lost more than half its value, but only after climbing 25 percent from the point it crossed over the 50 dma. Note, how the 100 dma (blue) rushes to protect the reversaline, while the 200 dma (red) hurries to guard the downtrend line since November.
The Net Volume suggests that uptick days are overcoming downtick days. When the net volume rises, chartists use it to predict that prices will follow, much like following the capital flow, which is used in the Money Flow Index (bottom). While it had reached an overbought condition, suggesting investors went too far, and a correction will ensue, it doesn’t seem like one would follow, considering there is nothing to correct.
Also, on the weekly chart, the MFI reached its most oversold condition since July 2016. Furthermore, despite the overbought condition, it failed to breakdown afterwards, as it has been holding since June 22.
When it holds for so long, it’s obvious investors didn’t feel the asset was overbought and rushed the other way. On the contrary, it may be seen as supportive consolidation, in which money changed hands and fresh investors are in position to take it up in another rally.
Further evidence can be seen by the On-Balance Volume, which measures buying and selling pressure. It had already completed a bottom, suggesting the price may follow suit.
Minimum Target Price is at $28, which jibes with the 2-year downtrend line, which is now at $31 and declining.
Should the 2-year uptrend line be breached, that would open up a potential for another $10 climb to $40.
Trading Strategies
Conservative traders would wait for a close above the $25 reversal line and psychological round number as well as a close above a 3 percent filter above $25.75.
Moderate traders would wait for a 2 percent filter, with a close above $25.50, which should also cross over the 100 dma (blue), which is now at $25.38 but may climb along with the price.
Aggressive traders should wait for at least a 1 percent filter with a close above $25.25, to avoid a bull-trap.