Brick-and-mortar retailer Macy's, Inc. (M) traded nearly 61 million shares during Thursday's earnings-fueled advance, closing at a nine-day high while posting the heaviest one-day volume in its 25-year public history. Taken in context with long-term Fibonacci retracement targets and deeply oversold monthly relative strength readings, the stock may have posted a major bottom that will reward long-suffering shareholders into 2018 and beyond.

The uptick could signal a broader turnaround for the beaten-down retail sector, which is reeling from endless bear raids generated by market share losses to Amazon.com, Inc. (AMZN) and other internet juggernauts. Unusual buying pressure also suggests unexpectedly strong results for mall anchors and big box stores during this year's closely watched holiday season. Even so, market players should apply aggressive risk management strategies to avoid getting caught in inevitable downdrafts. (See also: Macy's Shares Surge on Holiday Quarter Outlook.)

M Long-Term Chart (1992 – 2017)

 

The company came public at a split-adjusted $8.63 in February 1992 and fell to $5.63 two months later. That marked a major low, ahead of a two-legged uptrend that topped out in the upper $20s in July 1998. A pullback got bought a few months later, ahead of a 1999 failed breakout attempt that yielded a double top breakdown at the turn of the new millennium. The decline found support near $10.50, establishing the bottom end of a trading range that held intact until 2005.

A breakout at that time caught fire, continuing into the March 2007 high at $46.70, ahead of a volatile downturn that accelerated during the 2008 economic collapse. The stock plunged into November, undercutting the 2000 low before bottoming out at an all-time low in deep single digits, while the subsequent recovery wave completed a V-shaped pattern that reached the 2007 high in May 2013.

Macy's stock completed a long-term breakout in 2014, lifting in a steady uptrend that hit an all-time high at $73.21 in July 2015, but it then turned lower in a sector-wide decline triggered by escalating market share losses. The downtrend reached the .786 Fibonacci retracement level of the six-year uptrend in August 2017 and broke support in late October. This week's high-volume reversal has lifted the stock to new resistance, with a buying spike that holds above $20 flashing a long-term 2B buying signal triggered by the failed breakdown. (For more, see: Citi Downgrades Macy's on Foot Traffic Declines.)

The monthly stochastics oscillator dropped into the oversold level in December 2015, bounced into October 2016 and returned to the prior low in March 2017. It has spent the past seven months glued to that level but has now crossed over and will issue a major buy signal after piercing the oversold line. Taken together with Fibonacci targets and the potential failed breakdown, the stock may have arrived at a tradable low that will hold for months or years to come.

Profitable positioning will require a long-term holding period if this bullish scenario plays out, with an initial focus on heavy resistance generated by the May 2017 breakdown through the .618 retracement in the low $30s. That level also marks 200-month exponential moving average (EMA) resistance, a common upside target for bounces after a long-term decline. A rally into that price zone would mark a potential 50% profit for positions taken near $20 following a 2B buy signal, offering an attractive exit for market timers.

Even so, multiple bottoming signals could generate a stronger recovery wave, perhaps reaching as high as the mid-$40s in the one- to three-year time frame. That tailwind suggests a buy and hold strategy, managed with a loose profit protection stop. This combination should benefit from short squeezes likely to continue through the new uptrend while conceding that the paradigm shift into online sales will eventually take a greater toll on this old-school retailer. (See also: Macy's to Open on Thanksgiving Day to Tap Holiday Fever.)

The Bottom Line

Macy's stock is close to setting off long-term buying signals after posting its highest volume day since it came public in 1992. Short-term volatility is likely to continue despite those bullish signals, suggesting that a long-term holding strategy will offer the most effective way to build profits. (For additional reading, check out: 7 Battered Stocks Set to Rebound in 2018.)

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

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