M: Battered consumers limp back?

Macy's Inc (M) has been on a roll since last August, and the analysts are at last starting to like what they see.

Retailing was hit so hard by the recession, it's hard to believe that battered consumers might in fact be limping back. If M's stock price is a leading indicator, then the answer is "Yes".

Macy's hit rock bottom in November 2008 at $5.07, and has zig-zagged itself up ever since. The most recent zig has carried the price from $22.66 in August 2011 to $35.92 on Jan. 19. Since then, the stock has fallen in a five-trading day correction, and then resumed its rise.

M had the second-best chart of 19 added to Zacks top buys on Wednesday. I wrote about Wednesday's top pick, Seagate, earlier today. Thursday's top pick was Olympic Steel Inc. (ZEUS), but it has average volume of 53,000 shares with a chart retracing upward within a broader downtrend, and that means there is precisely zero chance that I would consider opening a bull position.

M is within a longer-term uptrend, and it has the advantage of liquidity, which means a good options selection, which means I can still open a bull position if so minded and hedge against declines. Highly liquid stocks give me so many fine choices when it comes managing a position.

For M, a break above $35.92 would signal the rise was indeed continuing. That level is 2.1% away.

M has a 22% return on equity, and a debt/equity ratio of 1.19. The debt is way too high for my idea of a growth stock, but the return on equity is excellent.

Institutions love M -- they own 91% of the stock -- and M is on sale, with 55 cents worth of stock buying a dollar in sales.

A mentioned liquidity -- 7.2 million shares on average. There is a full selection of options, with mainly three-figure open interest but some with four figures.

Implied volatility is on the lowish side, at 34%, and is in a downtrend. I would look to open a position for net credit, selling the current volatility in the expectation of buying it back at a lower level.

A cautious trader will wait for a break above $35.92, signalling the uptrend is indeed continuing.

Decision for my account: I've opened a March bull put spread, short the $24 strike and long the $19 strike.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.