Retail stock Macy’s (M) has struggled since peaking near $42 in mid-August, with the shares traversing a channel of lower lows. More recently, the stock has shed nearly 18% so far in 2019, and a technical signal suggests the worst may not be over for M shares.
Macy’s stock has labored to take out the $26 level since suffering a bear gap to this region in mid-January. While the security is off its March 8 annual low of $22.73, it’s now within one standard deviation of its 80-day moving average, after a lengthy stint south of this trendline.
Over the past three years, there have been 10 similar run-ups to this moving average, after which M dropped 6.53% over the subsequent month, moving lower 88% of the time, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. From the stock’s current perch at $24.56, a similar drop would put the retail shares around $23.20.
Despite the department store concern’s struggles in 2019, options traders have picked up bullish M bets at a rapid-fire clip recently. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock’s 10-day call/put volume ratio of 5.01 indicates speculators have bought to open five Macy’s calls for every put in the past two weeks. This ratio ranks in the 86th percentile of its annual range, pointing to a much healthier-than-usual appetite for long calls over puts of late. An unwinding of optimism in the options pits could exacerbate M’s slide, should the shares once again retreat in the face of their 80-day.
Of course, it’s worth noting that some of the recent call buying — particularly at out-of-the-money strikes — could be attributable to short sellers seeking an options hedge against a breakout to the upside. Short interest represents a healthy 13.2% of Macy’s total available float, or about six days of trading, at M’s average daily volume.