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Does Macy's Lead The Dow?

01/17/13 08:03:37 AM
by Koos van der Merwe

With the US economy expected to recover in the years ahead, is it time to buy Macy's?

Security:   M, DWIX
Position:   Sell

We all know Macy's, the retail store. If you haven't visited the store, even if you just walk through all the floors, looking at the merchandise, enjoying the ambience of one of the US's top retail stores, then you haven't experienced America. The store is famous for its diversity. It has produced the Macy's Thanksgiving Day Parade in New York City annually since 1924, also sponsoring the city's annual Fourth of July fireworks display since 1976.

With the US economy expected to recover over the next four years, should we buy the shares now and hold for the long term? Let us look at the charts.

Graphic provided by: AdvancedGET.
Figure 1 is a monthly chart of Macy's and shows how the share price fell from $28.35 with the dotcom bubble burst to a low of $10.54 by July 2000. In actual fact, the share price formed a double top at $28.35 and started falling in May 1999 seven months earlier than the bubble burst in 2000 as shown in the chart of the DJIA in Figure 2. I can only assume that this was because investors sold their shares in Macy's to buy dotcom shares. The old story: investors buy at the top and sell at the bottom.

Forming a double bottom at $10.54 between July 2000 and February 2003, the share price started to climb reaching a high of $46.70 by February 2007 before falling to a low of $5.30 by November 2008. The DJIA only bottomed in March 2009. Once again, the share price of Macy's acted as a leader in market direction.

Graphic provided by: AdvancedGET.
Figure 2 is a monthly chart of the DJIA showing the market meltdowns of January 2000 and October 2007. The Elliott wave count leading into a current wave 1 is not a confirmed count and could change should the DJIA's performance change. However, with the monthly chart of Macy's suggesting a sell, as shown by the relative strength index (RSI), a wave 2 correction or an ABC correction of the DJIA could occur.

With the history of Macy's share price showing that it leads the DJIA, and with the RSI in Figure 1 suggesting a sell signal for Macy's shares, in May 2012 we could expect the DJIA to follow suit and start falling. Savvy investors could keep this in mind, analyze their portfolios, and start taking profits.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Vancouver, BC
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