Macy's (M) - Get Macy's Inc Report is scheduled to report earnings Thursday -- and investors want to know whether the stock is a buy before then, particularly in light of the data breach the iconic retailer disclosed.
The Cincinnati company tomorrow joins BJ's Wholesale Club (BJ) - Get BJ's Wholesale Club Holdings, Inc. Report in pre-market retail earnings reports and precedes Nordstrom (JWN) - Get Nordstrom, Inc. (JWN) Report , which reports after the close.
When Macy's fell 11% on Tuesday, many investors assumed it was on earnings. After all, the company was falling hard at the same time Home Depot (HD) - Get Home Depot, Inc. (HD) Report , Kohl's (KSS) - Get Kohl's Corporation (KSS) Report and other names were enduring post-earnings declines.
But before the open Macy's disclosed a data breach. Management said the breach affected only a small number of customers during a one-week span. We'll surely find out more when Macy's reports on Thursday.
Let's see what the charts tell us now about Macy's.
Trading Macy's Stock
Sizing up Macy's stock ahead of earnings presents problems. A look at the year-to-date chart above shows the series of lower highs that have plagued the name.
The stock continues to trend from the upper left to the lower right. That's not a good sign for the bulls. Tuesday's 10% decline, however, makes the call more difficult because the stock has less risk on the long side. That is, perhaps investors have priced in the worst.
The bad news is: If they haven't, then the stock can continue lower.
A post-earnings move in this name could easily be 10% or more and will likely happen in gap fashion, meaning investors have no time to adjust until it's too late.
So to answer the headline's question, no, investors shouldn't buy the stock ahead of the report. Instead, let's see how it trades after the earnings report.
The shares are sitting right on up-trend support (blue line) but are below the 50-day moving average. Should Macy's stock resolve lower, the $13.90-to-$14.10 area must become support for the stock. That's about 7% below current levels. Should it fail, the stock can go on to new lows.
On a rebound, see if M stock can reclaim the 50-day moving average at $15.70. If it can, a rally up to $17 is possible.
From there, see whether Macy's can reclaim the 100-day moving average at $17.20 and take out the September high of $17.59. Above the latter and it can continue filling the gap from August up toward $18.70.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.