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How To Trade Macy’s After A Huge Rally On Strong Earnings

Macy’s (M) easily beat second quarter earnings-per-share estimates reported before the opening bell on Thursday, August 19. Revenue rose by nearly 60% in the quarter. The company is also reinstating its quarterly dividend. The retail giant announced that it was adding Toys R Us sections in more than 400 stores through 2022.

The stock closed Wednesday a $18.07 and traded as high as $21.00 on Thursday, August 19, a gain of 16.2%.

The stock is not cheap as its p/e ratio is elevated at 96.16% according to Macrotrends. Even with the pandemic slowdown, Macy’s has beaten earnings-per-share in eight consecutive quarters.

The Daily Chart for Macy’s

Shares of Macy’s have been above a golden cross since Dec. 2, 2020, as shown in the lover left side of the chart when the stock closed at $10.96. This buying opportunity occurred when the 50-day simple moving average rose above the 200-day simple moving average.

This provided the momentum for the stock to trade up to its 52-week intraday high of $22.30 set on Jan. 27, 2021. The stock quickly declined to $13.56 on February 2. This set a trading range that should stay in play for the remainder of the year. Since this range has been set the 50-day simple moving average has been a magnet.

The stock popped above its 50-day SMA at $18.19 on the August 19 positive reaction to the second quarter earnings.

On the earnings, the stock popped above this week’s pivot at $18.70. This is a signal of potential strength to the monthly and annual risky levels at $22.13 and $24.18, which would set a higher high for the trading range. Note that the 50-day and 200-day SMAs are now at $18.19 and $15.41.

The Weekly Chart for Macy’s

The weekly chart for Macy’s is positive with the stock above its five-week modified moving average at $18.61. Its 200-week simple moving average or reversion to the mean at $20.03 has been a magnet since the week of January 29. The 12x3x3 weekly slow stochastic reading is rising at 55.79. This positive chart favored a positive reaction to the second quarter earnings report.

Trading Strategy: Buy Macy’s on weakness to its 50-day simple moving average at $18.19. Reduce holdings on strength to its monthly and annual risky levels at $22.13 and $24.18.

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