Macy’s Poised to Double After Fibonacci Encounter

Bullish   

E-commerce has been making life difficult for Macy’s even before the pandemic. The company was struggling to move the needle in terms of sales growth for years. The introduction of anti-Covid measures and lockdowns erased over $7 billion from its top line for a 28.5% decline in fiscal 2021. The stock plunged below $5 a share in March 2020, down 94% from its 2015 all-time high of $73.61.

But Macy’s survived the carnage and in fiscal 2022 sales were almost back to pre-pandemic levels. The share price, meanwhile, recovered to as high as $37.95 in November, 2021. And just when M was on the verge of gaining investors’ trust again, the stock fell over 55% to $16.95 last month. As of this writing, it trades close to $23.85. The question is whether this recent bounce is the start of a new uptrend or just a correction within the downtrend.

Macy's stock bouncing off Fibonacci support level

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Fortunately for the bulls, the Elliott Wave chart above suggests it is the latter. The recovery from sub-$5 to nearly $38 a share is a clear five-wave impulse pattern labeled 1-2-3-4-5, where wave 4 is a triangle. According to the theory, and our personal experience, impulses only develop in the direction of the larger trend.

However, another rule states that a three-wave correction has to occur before the trend can resume. In the case of Macy’s, we have a complete A-B-C zigzag correction, whose wave B is, again, a triangle. If this count is correct, the stock has now drawn a complete 5-3 wave cycle and is poised to head north again. Furthermore, wave C seems to have ended just after touching the 61.8% Fibonacci support. The sharp bounce off this key level is a strong bullish sign, as well.

Initial targets for the anticipated rally lie above the top of wave 5 at $38. We won’t be surprised to see Macy’s climbing past $40 and even go for the $50 mark in the months ahead. In other words, the stock can double from here, especially considering that it trades at a forward P/E ratio of 5. Macy’s might be far from its heyday, but the market seems to have left it for dead. With a manageable debt load and $2B in annual free cash flow, this cannot be farther from the truth. And the charts agree.

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