Bottom fishers are scooping up shares of Macy's, Inc. (M) even though the stock plunged to an all-time low in March and rival J. C. Penney Company, Inc. (JCP) just declared bankruptcy. Accumulation readings have been impressive, hitting all-time highs, but underlying mathematics have been distorted to some extent by heavy short selling during the first quarter swoon and equally vigorous short covering during the three-month bounce.

The hopeful bids are highly speculative because, Inc. (AMZN) and other e-commerce juggernauts have been taking market share from Macy's and other mall anchors for more than five years, and there are no signs that the exodus is going to end soon. In addition, the pandemic could permanently change the shopping habits of many older Americans who choose to avoid crowded places to minimize the risk of infection.

Interested investors may gain insight on the current outlook this week when a scheduled presentation at a Cowen retail conference offers a perfect opportunity to disclose financial trends. Macy's recently reported that 68 stores had reopened the first week of May and that demand of approximately 50%, compared to 2019 levels, was higher than expected. It was also noted that digital sales were "resilient," but no specific metrics were offered.

Macy's has also warned that second quarter results would generate much weaker numbers than the first quarter. Guidance issued during the May 21 earnings presentation is looking for revenues of $3.00 billion to $3.03 billion, compared to estimates of $3.38 billion, and an operating loss of around $1 billion. It's likely that the company can't survive for more than a few quarters bleeding cash at this rate, so it's no surprise that Macy's is looking for a major sales pick-up in the second half.

M Long-Term Chart (2007 – 2020)

Long-term chart showing the share price performance of Macy's, Inc. (M)

The stock topped out in the mid-$40s in 2007 and sold off into the single digits during the 2008 economic collapse. The subsequent uptick took more than four years to complete a round trip into the prior high, yielding an immediate breakout that posted an all-time high at $73.61 in July 2015. The subsequent pullback failed the breakout in the fourth quarter, adding to a downtrend that posted a series of lower lows into November 2017, when it bottomed out in the upper teens.

The subsequent rally stalled and reversed at the .382 Fibonacci selloff retracement level in the summer of 2018, reinstating selling pressure that eased after failing 2017 support in August 2019. The stock floated higher for five months and sold off once again at the start of 2020, breaking down to a new low during the pandemic-driven decline. Price action undercut the 1993 low by 75 cents before bottoming out and bouncing into the second quarter.

M Short-Term Chart (2017 – 2020)

Short-term chart showing the share price performance of Macy's, Inc. (M)

The on-balance volume (OBV) accumulation-distribution indicator topped out with price in 2018 and entered a distribution phase that ended in September 2019. Buying interest into 2020 failed to reach the prior peak, yielding renewed downside that cut through the 2019 low in March. Buying power and short covering since that time have been phenomenal, lifting the indicator above the 2015, 2018, 2019, and early 2020 highs. In turn, this suggests that the stock has finally bottomed out and has entered a new uptrend that could last several years, at a minimum.

Price action has lagged enthusiastic volume readings by a country mile but has now reached March levels after breaking out above a two-month range between $4.50 and $7.00. It has also cleared the 50-day exponential moving average (EMA), raising the odds that the uptick will reach 200-day EMA resistance near $12. While that could generate short-term profits for well-timed long positions, the wall of resistance in the mid-teens could take months to overcome, telling the majority of market player to sit on their hands.

The Bottom Line

Macy's stock may have entered a new uptrend, but the current reward-to-risk profile isn't good enough for most investors to jump on board.

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