Macy’s Headed for a Breakdown

by Serge Berger | April 15, 2013 6:55 am

Serge Berger is the head trader and investment strategist for The Steady Trader[1]. Sign up for his free weekly newsletter here[2].

Macy’s (NYSE:M[3]) — We saw plenty of weak looking daily closes from individual stocks following Friday’s action, among them this department store retailer.

 M Weekly Chart
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Looking at a chart spanning back to 2009, the stock continues to trade in an orderly uptrending channel. In early 2012, Macy’s went vertical, shooting out of this long-standing uptrend, as investors chased stocks higher. By July 2012, the stock found its way back into the middle of the uptrend. After retesting this upper range again several times in the second half of 2012, last week, the stock managed to close above the channel for the first time in roughly 12 months.

M Daily Chart
Click to Enlarge

On March 20, Macy’s staged an important breakout past a 10-month resistance point around $41.50, which ultimately led to the breakout above the uptrend.

On Thursday and Friday, the stock tried at intraday rallies, both of which failed, leaving two bearish shooting star candles (candles with long top tails at the top of a swing) behind on its daily chart. 

Such weak daily closes should, at the very least, signal a warning to those long the stock. For those looking for a swing trade, the stock is now setting up a short-side trade. The trade targets a retest of the March 20 breakout level around $41.50, and best of all, offers clearly defined risk. Any daily break above Friday’s high at $45.39 would instantly prove the trade wrong and allow for an emotionless stop-out. 

Remember, any given trade either works or it doesn’t. After all, trading is a game of probabilities, and as long as losses are managed, i.e., kept as small as reasonably possible, this process allows us to move on to the next trade without hesitation.

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