Macys Inc. (M) reported a 2.1% decline in fourth-quarter comparative sales on Tuesday morning, highlighting a mediocre earnings report that’s triggered a healthy buy-the-news reaction. The company closed 66 stores in 2016, falling short of its hundred store goal, advising the balance would be shut down in the next few years. They expect revenue declines between 3.2% and 4.3% in fiscal year 2018, despite aggressive marketing initiatives.

They’re slashing costs due to slowing sales in a brutal environment that’s triggered equally bearish metrics throughout the brick and mortar retail space. Activist investor Starboard Value LP has pressed the company to maximize the value of its real estate portfolio while forcing preliminary takeover talks with rival Hudson Bay Co. Those aggressive actions could forestall short sellers into the second-half of 2017 and lift the stock off multi-year lows.

M Long-Term Chart (1992–2017)


The retailer came public in February 1992 near $8.50 and sold off to $5.82 a few months later. The subsequent bounce stalled just above $10 in 1994, giving way to a 2-year trading range, ahead of a $1995 breakout that yielded a channeled uptrend into the 1998 high at $28.09. The stock then entered a long period of underperformance, drifting lower in a choppy decline that finally completed a double bottom reversal in 2004.

It gained ground at a solid clip into the fourth-quarter of 2006 when momentum fizzled out in the mid-40s. A triple top pattern at that level broke down in September 2007, generating a decline that accelerated during the 2008 economic collapse, landing on an all-time low at $5.07 in November. The subsequent bounce carved a broad V-shaped pattern, finally reaching the 2007 high in 2013. It cleared multi-year resistance into 2014 and took off in a stable uptrend that nearly doubled the stock’s price into the July 2015 all-time high at $73.61.

Aggressive sellers then emerged, triggering a major downtrend that’s continued to post lower lows into the first quarter of 2017. However, the trajectory of selling pressure has eased considerably since the end of 2015, yielding multi-month bounces that ended the long string of lower highs and lower lows in November 2016. This technical event could mark the start of a trading range that ends the long downtrend, but it will take months or longer to confirm a large-scale reversal and bottom.

M Short-Term Chart (2014–2017)


A channeled uptrend into July 2015 broke to the downside during the August mini flash crash, generating a decline that ran out of steam in December. A bounce into March got sold at resistance generated by the failed breakout above the 2007 high (blue line). The stock fell to a lower low at $30 in May, yielding a stronger bounce that failed at the same barrier in November. That reversal generated the strongest selling pressure since 2015, dumping price to a 5-year low at$ 28.55 in January 2017.

On Balance Volume (OBV) has carved a more bullish pattern than price, completing a distribution phase in December 2015, ahead of a 2016 uptick that hit an all-time high in November when a rally fizzled out more than 28-points below the July high. This unusual buying pressure signals long-term speculative interest, with funds picking up shares in anticipation the company will unlock value through initiatives pressed by activist shareholders. This type of sponsorship could be volatile, triggering aggressive selling pressure if merger and real estate deals aren’t completed as anticipated.

The Bottom Line

Macy’s has bounced strongly off a 5-year low despite a weak fourth quarter earnings release. This conditional uptick is likely to fizzle out if the company fails to unlock real estate value and complete takeover discussions with Hudson’s Bay. While that speculation has attracted unusual fund buying interest, those players could exit en masse if deals don’t get done.

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