Macy's, Inc. (M) stock sold off on Tuesday after a seemingly benign fourth quarter 2019 report, posting earnings per share of $2.12, which beat estimates by $0.14. Revenue fell 1.4% year over year, continuing a contraction that started in the middle of the last decade when e-commerce grabbed huge market share from brick-and-mortar retailers. Comparative store sales dropped less than 1% since the fourth quarter of 2018, but the company also noted virus-driven supplier problems and is expecting first quarter 2020 results to reflect headwinds from the growing pandemic.

The stock has struggled since hitting a 10-year low after August's second quarter 2019 report, carving a shallow range between $14.00 and $18.00. Impressive bottom fishing during this period has failed to lift the chronic laggard, adding to bearish signals that may now take control of the tape. Ominously, Macy's stock closed the session just 60 cents above range support, raising the odds for a breakdown that is likely to target the deep low in the single digits posted during the 2008 economic collapse.

M Long-Term Chart (1992 – 2020)

Long-term chart showing the share price performance of Macy's, Inc. (M)
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The retail chain attracted healthy buying interest after coming public in the single digits in 1992, lifting from a split-adjusted $5.63 into the 1998 high in the upper $20s. That marked the highest high for the next seven years, ahead of a complex correction that found support near $10 at the turn of the millennium. The stock tested that support level successfully in 2002 and 2003, setting the stage for a strong advance during the mid-decade bull market.

A 2005 breakout above the 1998 high caught fire, lifting the stock into the mid-$40s in the first quarter of 2007. It reversed at that level in August, entering a steep decline that accelerated when the stock market crashed in October 2008. Selling pressure finally eased in December after undercutting the 1992 low by about 50 cents, giving way to a V-shaped recovery wave that completed a round trip into the prior high in 2013.

A 2014 breakout eased into a rising channel, continuing into July 2015 when the stock posted an all-time high at $73.61. Aggressive sellers took control through the second half of the year, buoyed by reports that Amazon.com, Inc. (AMZN) was stealing a large supply of customers from America's mall anchors. Subsequent price action for Macy's carved a long series of lower highs and lower lows, finally bottoming out at $17.41 in November 2017.

The rally into August 2018 stalled before reaching the .382 Fibonacci sell-off retracement or ending the string of lower highs, keeping the downtrend fully intact. The stock broke 2017 support in a high-volume sell gap in August 2019, adding to catastrophic losses during one of the strongest bull markets in history. Hopeful buyers added three points into January 2020, but the stock reversed before filling the gap, while sellers have now taken back the majority of short-term upside.

M Short-Term Outlook

The monthly stochastic oscillator crossed into a buy cycle from the oversold level in July 2019, but the signal failed, highlighting extreme weakness. A second buy signal is now in force, but continued selling pressure is telling market players to keep their powder dry because the stock could easily break seven-month range support, especially with broad benchmarks selling off in reaction to the pandemic.

The August 2019 decline broke the .786 Fibonacci rally retracement level of the 2008 into 2015 uptrend, while price action into February 2020 has failed to remount broken support. Downtrends will typically stretch from that harmonic level into a full 100% retracement once resistance is confirmed, raising the odds that the stock will drop into the single digits and head toward the 2008 low at $5.07. This prediction isn't outlandish, given the fate of brick-and-mortar retailers in recent years.

The Bottom Line

Macy's stock is selling off after fourth quarter 2019 earnings and could break support near $14, dropping into the single digits.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.