Macy’s sales report came in below expectations sending shares down today. I am taking this opportunity to modify the trade, and sell the front month OTM put against my open long Aug put. Hoping that the front month put will expire worthless.

The retail sales report that came out last week revealed some weakness in clothing retailers, which I think portends a possibly disappointing report out of Macy’s when they release earnings on May 9th. Combine that with the fact that Macy’s chart signals some serious warning signs that further upside in the stock price is unlikely. In the chart I’ve attached, there are some bearish signals I’d like to point out.

1. The uptrend dating back to Dec was broken on April 9th. Unlike previous successful attempts to reclaim the trend line (Jan, Feb, and Mar) price failed to reclaim back above the trend line this month. A bearish change of character for trend followers.

2. The 10/20 EMA downward cross is about to happen, and that constitutes a short-term sell signal. Also a parabolic SAR sell signal triggered on April 9th, providing $40.65 as a sell-stop for those who may get involved in shorting the stock.

3. Bearish divergences appear on the SS and MACD starting as early as mid-March, while price had continued to rise until the trend break I mentioned.

My PT is $36.80 in the shares, which would equate to about $5.45 as my target, sometime between now and August expiration

Chart courtesy Finviz. Click to open larger.

Additional Image Provided by Terrence:

This is not investment advice. Learning Markets, LLC is not responsible for errors or omissions. Please be sure to read our disclaimer.