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The rally in Macy’s, up 58% this year, could be coming to an end, market watcher warns

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Macy’s is having a stellar year, but one market watcher warns against chasing the rally

Shares of Macy's are on a tear, tracking for the best annual performance since 2009. But some are skeptical about the prospects.

The stock has surged a stunning 58 percent this year, far outpacing the popular retail-tracking XRT, up nearly 9 percent in the same time. The last month's move has been particularly notable — up 33 percent since early May.

Macy's stock had been in the gutter. It sunk 30 percent in 2017 and rose a mere 2 percent the previous year. While retail stocks have enjoyed a recent leg higher, with brick-and-mortar names like Target, Kohl's and Tiffany rallying double digits this year, some market watchers are less than optimistic about the rally's footing.

"I would avoid this company," said Chad Morganlander, portfolio manager at Washington Crossing Advisors, citing concerns over the legacy retailer effectively adapting to consumers' shifting shopping habits.

"I think the 'Amazon effect' is a problem," he added Thursday on CNBC's "Trading Nation. "

Macy's kicked off this week on a high note, rallying 4 percent on Monday after Evercore ISI upgraded the shares to long from short, citing traditional retailers and brands growing to adapt in a digital age.

From a technical standpoint, the stock still remains well below its 2015 high, north of $70 per share.

The $42.50 mark, about 7 percent above current levels, will likely be the technical retracement level traders are going to keep an eye on, said Todd Gordon, technical analyst and founder of TradingAnalysis.com.

"You have a massive zone that must hold between $42.50 and $45.50. This short squeeze is on. If they can take that out, then I'm a believer," Gordon said Thursday on "Trading Nation," though he noted the stock is still within a multiyear downtrend.

Macy's shares were slightly lower Friday afternoon, trading at $39.89.