Macy's Earnings Rally Won't Last — Use These Trading Strategies to Make Money – TheStreet.com

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Macy’s  (M)  stock jumped Thursday on a better-than-expected earnings report, but the gains likely won’t last. Savvy traders can use stock options to profit from the stock’s expected move lower.

The retailer reported earnings before the stock market opened on Thursday, and shares closed the session 14% higher. The good news was accompanied by an ominous announcement concerning future store closures, however.

Adjusted earnings per share were 54 cents, vs. expectations of 45 cents. And revenue of $5.87 billion for the quarter handily beat estimate for $5.75 billion. This strong positive result was not the end of the story, however. Macy’s announced it will continue shrinking its market by closing another 100 stores in 2017, representing 14% of its total stores and reflecting poor performance over recent years.

With such mixed results, the stock’s gains in the wake of the earnings news are likely to be short-lived. The chart helps to explain why.

The first notable signal is easily overlooked in the large price surge. Immediately before the earnings announcement, a candlestick pattern showed up, the bearish doji star. This is a very strong bearish signal. The earnings report took the stock’s price from $34 to $39.81 at the close, with a huge price gap. The gap itself is a reversal warning, and this was accompanied by the largest one-day volume spike in the past six months. Further confirming a likely turnaround was momentum. The relative strength index ended at 69.97, very close to the 70 level that signals overbought conditions. The jump in RSI was exceptionally strong because the gap took it from 50 up to nearly 70 in a single day.