2 Oversold Retailers Looking for a Holiday Bounce

Macy's Inc (M) and Nordstrom, Inc. (JWN) could both capitalize on unwinding negativity on Wall Street

Dec 23, 2016 at 3:16 PM
facebook X logo linkedin


As the week before Christmas wraps up and customers run out to finish their last-minute holiday shopping, brick-and-mortar retailers are looking to profit from the rush of consumers who don't have time to make their purchases online. Among the stocks standing to benefit from the eleventh-hour scramble are department stores Macy's Inc (NYSE:M) and Nordstrom, Inc. (NYSE:JWN). Moreover, both M and JWN appear poised to run higher on the charts after their shares hit oversold territory.

M has underperformed the broader market in 2016, up just 4.1% year-to-date. That said, the stock has been coming on strong since tapping a five-year low in May, and has found support above a trendline connecting a series of higher lows since then. The shares are up 0.7% at $36.42 today, and it looks like a bounce may have been due, given last night's 14-day Relative Strength Index (RSI) of 30 -- on the edge of oversold territory, after being overbought a month ago.

While the equity has been trekking steadily higher for months, analysts have remained lukewarm toward M, with 10 out of 13 brokerage firms maintaining "hold" recommendations. Meanwhile, short sellers have continued to pile on. These bearish bets climbed by roughly 26% during the most recent two-week reporting period.

Pessimism has been running high in the options arena, as well. Specifically, M holds a 10-week put/call volume ratio of 0.86 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- just 4 percentage points from an annual high. An unwinding of bearish positions in and out of the options pits could help send Macy's Inc (NYSE:M) on another leg higher. The firm will also be depending on healthy holiday sales to bolster its stock, as CNBC called out M as one of the 12 companies most reliant on the holiday quarter.

Meanwhile, JWN has added 1% at $48.70, but is still sitting in the red on a year-to-date basis. The shares have been falling hard since topping out just south of $62 earlier this month -- bringing their 14-day RSI to 30 at Thursday's close -- and are testing support at the 200-day moving average. Touching this trendline could prove to be a bullish indicator for JWN , according to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White. Four pullbacks to this moving average have occurred over the past three years, and every one of these has resulted in a positive return after five days, with an average gain of 5.9%.

There's also plenty of pessimism left to unwind, which could create tailwinds for JWN. Of 20 analysts tracking the stock, 60% rate it a "hold" or worse, leaving room for upgrades. And short interest has been dropping since hitting a record high in August, but these bearish positions still represent more than 21% of JWN's available float. At the equity's average daily volume, it would take nearly eight sessions to buy back all the shorted shares -- plenty of purchasing power to boost the stock.

Options traders have shown a preference for call buying lately, per JWN's 50-day call/put volume ratio of 1.44 at the ISE, CBOE, and PHLX -- near the top quartile of its annual range. But it's possible many recent call buyers were in fact short sellers looking for a hedge against an upside surprises. Shifting gears slightly, Nordstrom, Inc. (NYSE:JWN) holds a front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.60 -- indicating puts nearly triple calls among near-the-money options in the January series. So, despite the recent call buying, short-term open interest remains heavily put-skewed.

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI