Mall Anchor Stocks Near Short-Term Buy Signals

Beaten-down brick-and-mortar retailer Macy’s, Inc. (M) just announced that it will partner with DoorDash to offer free curbside pick-up and same day delivery. The news looks pathetic at first glance, coming more than six months after pandemic shutdowns have exposed the industry’s perennially inadequate response to the e-commerce juggernaut. However, a more balanced view suggests that the retailer is finally taking its survival seriously after a two-year 85% haircut.

Key Takeaways

  • Department store stocks are testing range support and could bounce in coming sessions.
  • The long-term outlook for the group remains bearish, with high odds for declines to March levels.
  • Brick-and-mortar retailers are paying a heavy price for a chronic lack of innovation.

The four surviving mall anchors continue to struggle as we grind through the fourth quarter, but green shoots are appearing, with an improving U.S. economy and stubbornly loyal customer base that’s paying to keep the lights on. That could be why Telsey Advisory Group raised its price target on Macy’s shares in September, noting that second quarter results were a “pleasant surprise” that highlighted the company’s “ability to control the controllables.”

Aggressive cost cutting is underway at these old-school operations, as illustrated by Kohl’s Corporation’s (KSS) September staff reductions. The retailer cut 15% of corporate positions at that time, hoping to save $65 million on an annualized basis. The initiative adds to a February 2020 restructuring action, with combined cuts intended to save more than $100 million annually. Even so, more belt tightening is needed to avoid the fate of J. C. Penney, which was forced into bankruptcy earlier this year.

Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtorwhich is most common, or on behalf of creditorswhich is less common.

Macy’s Weekly Chart (2015 – 2020)

Macy’s stock ended a multi-year uptrend at an all-time high in the mid-$70s in July 2015 and entered a downtrend that found support in the mid-teens in the fourth quarter of 2017. A hopeful recovery wave into 2018 came up short, posting a lower high ahead of renewed selling pressure that broke the trading floor in August 2019. The stock drifted sideways into February 2020 and turned sharply lower, plunging to an all-time low below $5.00 in March.

The subsequent bounce stalled after probing the double digits in June, yielding a downdraft that undercut $6.00. Price action has tested that support level multiple times in the past four months, with a potential breakdown last week. However, buying interest has ticked higher since that time, and the stock could remount the barrier, reinforcing support. In turn, that might trigger a larger-scale bounce that keeps Macy’s from oblivion, at least until the November earnings release.

Kohl’s Weekly Chart (2015 – 2020)

Kohl’s stock tested 2000 resistance in the $70s for the second time in 15 years in 2015 and reversed, entering a downtrend that found support in the mid-$30s in 2016. It returned to resistance once again in July 2018 and charged higher, posting an all-time high at $83.28 before reversing in a failed breakout. Aggressive sellers then took control, grinding out a series of lower highs and lower lows that sliced through 2017 support in March 2020.

The selloff posted a 23-year low near $11, ahead of a second quarter recovery wave that failed to mount a single broken support level. It pulled back into the upper teens in July and has been grinding sideways at that trading floor for the past three months. It bounced at support for the third time last week, raising the odds for another trip into range resistance in the low $20s. This holding pattern is likely to end with a breakdown due to the potential impact of a second infectious wave.

A breakout refers to when the price of an asset moves above a resistance area or moves below a support area. Breakouts indicate the potential for the price to start trending in the breakout direction.

The Bottom Line

Department store stocks may bounce at support in coming sessions, continuing holding patterns that are growing vulnerable to major breakdowns.

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

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