After a dismal year for retailer Macy’s, Inc. (NYSE:M), which in 2015 dropped about 45%, the start to 2016 has been much the opposite thus far. M stock is more than 10% higher in these early January innings, albeit from very oversold multi-year lows.
To be clear, it’s in my opinion too early to be outright bullish on M stock through a multimonth/quarter lens, but from a more near-term momentum perspective, things are looking up.
Active investors and traders should jump on Macy’s momentum train.
While the new year for stocks thus far is outright ugly across the landscape, we have seen some rotation from 2015 winners such as the FANG stocks into 2015 losers such as Macy’s and Wal-Mart Stores, Inc. (NYSE:WMT).
If this type of rotation and momentum can sustain, then shares of Macy’s could well see a better mean-reversion move higher.
Macy’s Stock Charts
When I last discussed shares of Macy’s on Nov. 4, I said that the stock’s weekly close at the time was a first bullish sign, but warned that any drop below the $48 area before or after the Nov. 11 earnings report could lead to another leg lower.
The stock indeed dropped below $48 a few days later, and the $48 stop-loss saved us from a larger loss. Macy’s has since wiggled into a better near-term formation as we will see in a moment.
First and for perspective, let’s note that the multiyear picture for M stock looks awful but that the late 2015 lows did coincide with some horizontal support (red dotted line). From a momentum perspective, the late 2015 lows resulted in the Relative Strength Index at the bottom of the chart to reach fresh all-time lows. Since “all-time” is a long time those oversold conditions are worth respecting, again at least for the potential of an oversold bounce.
On the daily chart, we see that as a result of Monday’s more than 8% rally, M stock pushed out of a basing period and further above its yellow 21-day moving average. The stock had not been above this moving average since last July — a long streak to be below such a near-term moving average. Monday’s move came on the back of another push by hedge fund and Macy’s stock holder Starboard Value, pushing for more shareholder value creation by way of a REIT-type of structure.
M stock had reached a fresh 52-week low just a few weeks ago in December, but with the bottoming price action since and the confirmation of Monday’s move, active investors may look to buy Macy’s stock for more mean-reversion higher into the low to mid $40s.
Any major bearish reversal from here, as always, should stop as a stop-out warning.
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