Trade of the Day: Any Rally is a Chance to Sell M Stock

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Macy’s, Inc. (M) — M stock fell nearly 20% last week, dragging the retail sector and the broader market down with it.

The largest department-store chain in the United States sparked concerns over consumer spending when it reported its lowest quarterly sales since the recession. Management also cut its full-year sales forecast with CEO Terry Lundgren saying, “We are not counting on the consumer to spend more.”

Following the news, S&P Capital IQ Equity Research lowered its 12-month price target for M stock to $35 from $43. Its analysts noted revenues were hurt by unseasonable weather, falling same-store sales and weaker tourist revenues due to the strong U.S. dollar. With the latter two trends expected to continue, overall revenue is projected to drop 4% to 5% in fiscal 2017 (ending in January) despite online sales growth.

Turning to the chart, since hitting an all-time high of $73.61 on July 17, M stock plunged almost 60% to a new 52-week low of $30.34 on Thursday. Last week’s selling completed a head-and-shoulders top as it resulted in a breakdown from a neckline at about $39. The break occurred on a gap down with very high volume.

Such a break is often followed by a brief rally. But any rally in M stock should be used as a selling opportunity since the long-term trend is down and the near- to intermediate-term outlook is very weak.

If M stock can close the recent gap, look to sell shares short at $35 with a price objective of $28 for a potential gain of 20%.

Be aware that if you hold shares short through a dividend, you will be responsible for covering it. Macy’s pays a quarterly dividend of 37.75 cents, for a current forward annual yield of 4.8%, with its next ex-dividend date scheduled for June 13.

M Stock Chart
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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/macys-inc-m-stock-trade-day/.

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