Department store shopping spree
08/10/18

Chalk one up for the old guard.

The recent rebounds by Match Group (MTCH) and Walgreen’s Boots Alliance (WBA) have been a sight to see, after these stocks were pummeled when Facebook (FB) announced it was getting into the online dating business and Amazon (AMZN) announced it was getting into the prescription delivery business. They suggest not every company faced with competition from tech titans is going to tuck its tail between its legs and run.

Even some department stores—which many analysts and investors had left for dead a couple of years ago in the face of (as some saw it) insurmountable challenges presented by e-commerce—have made a comeback, both in terms of Street sentiment and rising stock prices.

Macy’s (M) is emblematic of the reversal of fortune in some brick-and-mortar retail stocks. In short, investors have been on something of a Macy’s shopping spree. The chart below shows that since late last year the stock has more than doubled, most recently knocking for the second time in the past couple of weeks at the resistance level (around $41) defined by its May and July highs.

Macy’s (M), 11/13/17–8/9/18. Macy’s (M) daily price chart. Another shot at resistance.

Source: OptionsHouse


Meanwhile, the stock put in a higher swing low in early August, forming a tightening triangular consolidation with an upside bias (static highs but rising lows). The weekly chart inset at the upper left shows the current consolidation has formed just a little below a longer-term resistance level formed by the 2016 highs around $45.50.

The fact that the stock appears poised to attempt a breakout above its near-term resistance and potentially challenge the longer-term resistance level is no guarantee the move will occur (or sustain itself if it does happen), but Macy’s current run has also coincided with what may be a bit of a sentiment shift in the market. One Street research firm, for example, recently argued that US department stores had emerged from their “protracted period” of underperformance leaner and better equipped (and willing) to employ digital technology and big-data analysis.1 That’s a long way from “Amazon will swallow you whole.”

And one other interesting bit of information emerged yesterday. Macy’s popped up in a scan of stocks with 30-day historical volatility (HV) below their 30-day options implied volatility. In this case, Macy’s HV was running around 27% while its IV was running around 51%:

LiveAction scan: 30-day HV < 30-day IV, 8/9/18. IV high relative to HV.

Source: OptionsHouse


What makes this worth noting is that HV simply measures how much the stock price has moved over the past 30 days, while IV represents the market’s expectation of volatility over the upcoming 30 days (as reflected in options prices). So, in this case, the options market appeared to be anticipating more price volatility in the near future than the stock had recently exhibited.

“Expectations,” of course, are never a guarantee, but it never hurts to know what different areas of market have on their shopping lists.

Note: Macy’s is scheduled to release earnings next Wednesday (August 15) before the open.

 

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1 Moody’s.com. Sector looks to reboot growth as it reinvents shopping in a digital world. 7/31/18.