Macy's Inc. (M) reported stronger-than-expected first-quarter earnings here on Wednesday morning. We looked at the charts of this iconic retailer the other day and concluded at the time that Macy's "could make an oversold bounce at any point but the ingredients for a sustained rally are lacking. I anticipate further declines in the weeks ahead." Sometimes stocks can turn on a dime, so let's check and see if anything looks different with prices trading higher before the opening bell.
In this daily bar chart of M, below, we can see that prices are still pointed down and still below the declining (read bearish) moving averages. The On-Balance-Volume (OBV) line is still pointed down, which suggests that sellers of M remain more aggressive. Price momentum has not slowed to give us a potential heads up on a reversal.
Japanese candlestick charts were designed to spot reversal in one, two or three sessions. That is one of their strengths. In this daily candlestick chart of M, below, we can see that Tuesday's trading session looks like a possible bullish "hammer formation." Candlestick reversals need three things to happen to work. First, you need a trend to reverse and M has been in a downtrend. Second, you need to identify the right pattern -- in this case a "hammer." And third, you need what we call confirmation -- we need to have a bullish candle pattern here on Wednesday to show that traders are acting on the hammer. We should know more at the close here on Wednesday.
In this weekly bar chart of M, below, not much has changed. Prices remain below the declining 40-week moving average line. The weekly OBV line is pointed down, but the 12-week price momentum indicator shows that the pace of the decline has been slowing.
In this weekly Point and Figure chart of M, below, we still have a bearish price target and it will take a significant rally to turn this chart bullish.
Bottom-line strategy: M could close higher here on Wednesday and give us confirmation that Tuesday marked a reversal on the candlestick chart (above). Unfortunately, candlestick charts do not give us price targets nor are they bottoms; we need more price action to reach that conclusion. If you look at the first chart again you can see that M has rebounded many times in the past 12 months but that none of those rallies lasted long.
