The market is forward-looking. Sometimes, we forget that. Sometimes, analysts forget that. I think there can be times that a stock can even forget that, even for a few days.
It is possible for current sentiment to reach levels not in tune with the forward-looking sentiment. Monday, Macy's ( M) is a perfect example. Goldman Sachs downgraded the stock to Sell based on structural headwinds offsetting strategic actions. In short, the analyst sees additional downside to retail operations that will offset upside from store segmentation and cost-savings initiatives. The thing is, I believe the market already has this baked into its future view. After the last earnings report, it's not as though expectations are fantastic. If Macy's can simply offset weakness in retail operations, then that's a win. Not a loss.
Yes, the company has somewhat stumbled with its direct-to-consumer push into e-commerce, but another few quarters of net-status-quo provides times and a sliver of optimism for bulls. And we're seeing it in the reaction of the stock Monday morning. Initially, shares were indicated lower, but as the morning passed into lunch, we've watched the stock rally. When a beaten down names opens red on a bad news then rallies green, we need to pay attention.
Shares have been consolidating over the past few weeks after the earnings disappointment across the board in November in retail-mall anchor names. Macy's didn't do itself any favors with its own report and outlook.
The pennant pattern first appeared to be a bearish flag, hinting at additional lower prices, but after Friday's rally followed by Monday's drop and pop, Macy's could be ready to fill that November gap. A close over the 50-day Simple Moving Average (SMA) along with the bullish crossover in the Full Stochastics have me optimistic from a trading perspective for the next few weeks. Again, those who wanted to tax harvest this name have likely done so, which sets us up for some chasers seeking upside in beaten down names to finish 2019 and start 2020.
It's difficult to view Macy's optimistically from an investment lens. There are many other big box retailers and niche retail names I'd rather own, but Macy's does offer some fantastic volatility on the trading front. Monday's morning low offers a crystal clear stop for those playing it long while the $16.50 gap fill level presents the first selling target on a long position. I'd only chase this with aggressive or speculative money, but I like this as 3% to 4% of the trading account stock position. At those levels, a resulting stop would only hit the account for 20 basis points to 25 bps, so nothing drastic, but if the stock squeezes, it could quickly see $17-plus. That's enough to get me intrigued for a long-side trade over the next month.
