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

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.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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