Mall anchors have added to summer losses after posting dreary second quarter results at the same time that Dow component Walmart Inc. (WMT) is reporting healthy comparative sales growth, indicating that another batch of formerly loyal shoppers have pulled up stakes and found cheaper alternatives. Given steep 2016 and 2017 downside, the current slide could end operations at the weakest components while stronger members are forced to team up to survive.

Of course, J. C. Penney Company, Inc. (JCP) has been on life support for several years now, and the stock could face NYSE delisting because it has been trading under a buck for 30 consecutive business days. The company received a warning from the exchange on Tuesday, indicating that it has six months to regain compliance. Delisting would signal a historic fall from grace for the 117-year-old retailer after trading publicly for more than 90 years.

Chart showing the share price performance of Macys, Inc. (M)
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Macys, Inc. (M) missed second quarter profit estimates by $0.17 per share while revenues fell 0.5% year over year. The retailer also reduced 2020 profit guidance and expects flat revenues during the period, but the company admitted that those numbers don't include the impact of tariffs that could hit the retail industry hard next year. Shareholders voted with their feet after the news, dropping the stock through the 2017 low and into a 10-year low in the mid-teens.

The stock completed a round trip into the 2007 high in the mid-$40s in 2013 and broke out, lifting to an all-time high at $73.62 in July 2015. Brick-and-mortar retailers then plummeted in reaction to rapid market share losses to Amazon.com, Inc. (AMZN) and other e-commerce juggernauts. Macy's and its rivals originally denied the paradigm shift, insisting that their business models were bulletproof, and were forced to play catch-up after continued losses.

It's been too little too late for most mall anchors and many occupants, with a growing number of stores shuttering operations and declaring bankruptcy. Unfortunately for Macy's, the decline off the 2015 high has just broken support at the .786 Fibonacci retracement level of the seven-year uptrend. This line in the sand typically marks the last harmonic support level before a downtrend completes a 100% retracement into the prior low, which is nearly 10 points lower at $5.07.

Chart showing the share price performance of Dillard's, Inc. (DDS)
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Dillard's, Inc. (DDS) reported a staggering second quarter loss of $1.59 per share and 2.8% contraction in year-over-year revenues in Thursday's post-market report. The stock is set to open Friday's session about 14 points lower in the upper $40s. If that bearish print holds, the stock will be testing the 2017 low at $45.51, setting the stage for a breakdown that exposes additional downside into the lower $30s.

Retail bulls have been touting the company's substantial real estate assets for years, but that has done little to stem the downward tide, especially with shopping malls all over the country now threatened with closures due to declining foot traffic. Even so, sentiment on Dillard's improved greatly during the 2018 bounce, which covered half the distance back to the 2015 all-time high at $144.

The stock has now given up nearly 100% of those gains and dropped toward the low tick of the 2015 into 2017 downtrend. A Fibonacci grid stretched across the uptrend that started in 2008 places the .786 retracement level at $33, which marks a final harmonic support level that bulls need to hold at all costs or risk a historic breakdown that might not end until the deep 2008 low at $2.50.

The Bottom Line

Mall anchors are reporting weak second quarter profits and revenue at the same time the White House is gearing up to place tariffs on a broad assortment of retail shelf items. These twin headwinds could eventually lead to bankruptcy at the weak retail sector components. 

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