Macy’s Inc. (M) shares tumbled 14% yesterday from $47.02 a share to $40.44 after reporting third quarter earnings. Adjusted earnings per share came in at $0.56, slightly better than analyst’s survey of $0.53. Net sales came in at $5.87 billion, far worse than the analysts’ expectation of $6.11billion. The largest U.S. department-store’s lowered full year guidance helped propel the biggest single day decline in more than seven years. Full year 2015 earnings per share guidance was lowered from $4.80 to $4.20-4.30 and revenue may fall 2.7-3.1%, much worse than the analysts’ estimate of -1.0%.
Price action on the M daily chart shows that in September the downward trend gained momentum once the death cross pattern formed and the 50-day SMA cross below the 200-day SMA. The chart also highlights the tentative respect of the 50.0% Fibonacci retracement level of the record rally from $5.07 to $73.61.
If we see the $39.32 level break, price continue to slide towards the $31.25 level. It is around that area that price could respect trendline support and value investors may come in.
If we start to see price continue to stabilize here, further upside could target the psychological $45 handle. A weekly close above that level could ultimately see further resistance from the $50 area.
The Trade: Buy M at $35.00, with a stop loss at $31.00 and a take profit at $45.00. The Risk/Reward Ratio is 2: