Nordstrom, Inc. (JWN) rejected a $50.00 per share buyout offer this week, ending the latest attempt to take the company private. Buyout rumors and negotiations have swirled multiple times in the past two years, but the company appears to be no closer to a deal than in 2016 or 2017. Fortunately, the failure might not matter because department stores are engaged in a comeback that predicts higher prices into the third quarter.

The mall anchor missed fourth quarter estimates in its March 1 release, but revenues rose more than 8%, defying predictions of an imminent demise generated by the exodus out of brick-and-mortar sales into e-commerce. Quarterly comps rose 2.6%, while fiscal year guidance foresaw an annual increase between 0.5% and 1.5%. Those numbers should be sufficient for the value crowd to maintain exposure following a brutal bear market that dropped the stock to a six-year low. (See also: 4 Cheap Retail Stocks That Can Outperform.)

JWN Long-Term Chart (1991 – 2018)

 

A long-term uptrend ended near $10 in 1987, while 1989 and 1991 breakout attempts failed, generating choppy sideways action that persisted into 1997, when the stock took off in a healthy uptrend. The rally stalled in the low $20s in 1999, giving way to a steep decline that marked the third failure to hold double digits, reaching $7.07 in October 2000 and testing support at that level three times into 2003.

The stock surged out of the three-year base in 2004, reaching the 1999 high a few months later and breaking out in a trend advance that continued into the February 2007 top at $59.70. A modest pullback accelerated during the 2008 economic collapse, dropping the stock back into the single digits, and a test of the lows posted at the start of the decade. The round trip found support at a 17-year low in November, yielding a vigorous bounce that reached the 2007 high in 2012.

A 2014 breakout made steady progress into March 2015's all-time high at $83.16 and rolled into a steep decline generated by the explosive growth of online sales. The sell-off ended in the mid-$30s in the second quarter of 2016, with price action since that time carving a broad basing pattern that tested the low successfully in November 2017. This bullish action will confirm a double bottom reversal with a rally into the $60s.

(If you want to learn to recognize double bottoms and other chart patterns, check out Chapter 5 of the Technical Analysis course on Investopedia Academy)

JWN Short-Term Chart (2015 – 2018)

 

A Fibonacci grid stretched over price action into 2016 organizes the brutal downtrend, placing a continuation gap between $58 and $61, right across the 50% retracement level. The bounce into December 2016 filled the gap and reversed, removing a technical obstacle when buying pressure returns to that level. That rally will require a breakout above the .382 retracement level in the low $50s, with resistance reinforced by the unfilled December 2016 gap between $53 and $55. 

On-balance volume (OBV) topped out in 2011, more than three years ahead of price, and ground sideways into the second half of 2015. It fell to a five-year low in May 2016 and turned higher, lifting to the highest high of the decade during the 2016 bounce. The sideways pattern since that time favors neither bulls nor bears, but its placement high in the long-term range predicts that buyers will ultimately prevail.

Momentum buying signals won't go off until the stock fills the 2015 gap and trades into the $60s, completing the double bottom reversal and entering a new uptrend. Dip buyers may consider long exposure if a pullback reaches the 200-day exponential moving average (EMA) at $47, with that level offering support multiple times in the past three months. Current cycles suggest that buyers will have the upper hand into the second quarter, so watching price action around the gap could pay off handsomely. (For more, see: Who Are Nordstrom's Main Competitors?)

The Bottom Line

Nordstrom rejected the latest privatization attempt this week, but the stock could still gain ground in the coming weeks. A rally above $60 would offer the best-case scenario for bulls, confirming the first long-term uptrend since 2015. (For additional reading, check out: The Industry Handbook: The Retailing Industry.)

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

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