Why Macy's Inc (M) May Be Cooking Up a Post-Black Friday Plummet

Macy's Inc (M) has historically underperformed in the week following Black Friday, and it looks like a breather may be overdue

Nov 23, 2016 at 2:49 PM
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While retail stocks are enjoying a strong week heading into Black Friday, not every sector component has historically fared quite so well in the week that follows. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, Macy's Inc (NYSE:M) has been among the worst post-Black Friday week performers out of major retailers over the past 10 years -- generating a positive weekly return just 20% of the time. And that's not the only reason to be wary of M's near-term prospects.

Trading 0.9% higher at $44.86 today, not far from its March annual high, M is butting up against its overhead 80-week moving average -- a trendline that rose in step with the shares from late 2009 through its mid-2015 record peak, and coincides with peak call open interest at the January 2017 and December 45 strikes. The stock is also deep in overbought territory, per its 14-day Relative Strength Index (RSI) of 85. That means M could be overdue for a breather, from a technical standpoint.

Taking a look at the stock's sentiment backdrop, it seems a move lower may be just what traders are betting on. After all, short interest on M rose by 9% during the most recent reporting period. But the bearish bandwagon is far from full, considering less than 4% of M's float is sold short, so the stock could get hit with a fresh round of selling pressure, should shorts continue to climb on board.

Meanwhile, bearish betting in the equity's options pits has been hitting fever pitch. Specifically, M's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is seated at a 12-month high of 0.75. Near-term speculators have also been unusually interest in puts of late, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.71 -- near the top quartile of its annual range. It's possible, however, that some recent put buyers are M shareholders hoping to protect profits against a downside surprise.

Notably, now could be a prime time to pick up premium, as M's short-term options are well priced, from a volatility point of view. In fact, the security's Schaeffer's Volatility Index (SVI) of 29% and its 30-day at-the-money implied volatility of 28.2% sit in the low 13th and 12th percentiles of their respective 12-month ranges. What's more, Macy's Inc (NYSE:M) currently boasts a Schaeffer's Volatility Scorecard (SVS) of 91, indicating the options market has tended to underprice the stock's ability to make big moves over the past year.

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