Shares of America's mall anchors have resumed steep downtrends after 2018 relief rallies and could trade at new lows in the coming months, generating profitable short sales. In fact, group components with the strongest balance sheets could eventually join J. C. Penney Company, Inc. (JCP) and Sears Holdings in prolonged descents into oblivion, stuck on the wrong side of a historic paradigm shift.
These department stores have been losing market share to Amazon.com, Inc. (AMZN) and other online retailers since 2015, forcing reorganizations, store closings, and slimmed-down inventories. Chinese and Mexican tariffs could deliver final and double-edged blows, reducing profit margins in a recessionary environment while forcing penny-pinching customers to seek out lower prices at Walmart Inc. (WMT), Target Corporation (TGT), and other discounters.
Nordstrom, Inc. (JWN) illustrates how quickly things have gone bad for the group, hitting a three-year high in the upper $60s in November 2018 in reaction to months of speculation that the company would be taken private. But no suitor emerged, triggering a steep reversal that has shed more than 35 points in the past seven months. Worse yet, price action has sliced through two major support levels like butter in the past month, highlighting a shareholder exodus that has dumped accumulation readings to two-year lows.
The stock is extremely oversold and could bounce at any time, but there isn't much support on the monthly chart until the decline reaches the .786 Fibonacci retracement level of the 2008 to 2015 uptrend near $23. Ominously for bulls, that level marks final harmonic support before the stock enters a major test at the deep 2008 low in the single digits. It won't happen overnight, but it's hard to bet against a downtrend that has now entered its fifth year.
Kohl's Corporation (KSS) had been the group's strongest performer since 2017, exploding to the upside in a vertical recovery wave that ended after lifting just five points above 16-year resistance in the upper $70s. The November 2018 bull trap yielded a rapid decline into the lower $60s, followed by an oversold bounce that stalled in the mid-$70s in April. It's been all downhill since that time, with the stock dropping 37% in just six weeks.
The furious downtrend has now reached support at the 200-month exponential moving average (EMA), forecasting a bounce into the upper $50s that could offer a low-risk short sale opportunity, ahead of a downdraft that reaches the 10-year rising highs trendline (red line) in the upper $30s. A trendline breakdown would set off all sorts of long-term technical alarms that predict an eventual test at last decade's bear market low.
Macy's, Inc. (M) stock posted an all-time high in the mid-$70s in July 2015 and turned sharply lower, failing a 2013 breakout above the 2007 high at $46.70 just four months later. That level has marked resistance over the past three years, repelling 2016 and 2018 recovery attempts. A long series of lower lows ended at a seven-year low in the lower $20s in 2017, establishing a support level that is now getting tested for the first time.
A Fibonacci grid stretched across the 2008 to 2015 uptrend places the 2017 low near the .786 retracement level, which marks final support ahead of continued downside into the 2008 bear market low at $5.07. The decline has already crossed the .786 retracement of the 2017 into 2018 bounce, predicting that rally attempts into the mid-$20s will offer low-risk short selling opportunities.
The Bottom Line
Mall anchors are struggling to overcome major headwinds generated by paradigm shifts, tariffs, and the threat of an economic downturn. Some of these companies could eventually follow the footsteps of beaten-down competitors J.C. Penney and Sears Holdings.
Disclosure: The author held no positions in aforementioned securities at the time of publication.