Last week, Macy's (M) entered a major resistance area. On Friday, the stock left behind a key downside reversal after putting in a seventh straight higher high. This week, Macy's stock has continued to weaken as a healthy pullback develops. For patient investors, the end result will be a very low-risk entry opportunity.
A week after Macy's powerful earnings-inspired breakout move back on Aug. 11, the stock began to fade. By mid September, the stock had filled the huge Aug. 11 gap while remaining in a narrow consolidation pattern just below the 200-day moving average.
Macy's continued to move sideways for all of October as overhead pressure increased. When November opened, it began to lift. As earnings approached, the stock put in a second straight higher monthly low. The stock was setting up well for a positive result.
Macy's opened on Nov. 11 with another earnings-inspired upside gap. Two weeks later, the stock was retesting a major supply zone just below $46. With momentum easing, this key area held, leading to a pullback.
As this phase plays out, patient Macy's investors should keep a close eye on the $41 to $39 area. This two-dollar zone, which includes the August high as well as the Nov. 11 breakout gap, marks a very solid low-risk buy zone. A base here will allow the stock to work off its overbought condition while building a new base.