Wal-Mart Stores (WMT) is set to report their most recent quarterly earnings report before the open of tomorrow’s trading session. The stock is currently trading around $57.30 in a 52 week range of $56.30-$90.97. The stock is moderately higher on today’s session but has been massively underperforming the broader market this year. The stock has fallen over 33% year to date and is less than $1.00 off of its 52 week lows going into the report.

Despite the modest move higher in the stock today it appears that WMT is setting up well for a short ahead of earnings. Over the past 12 quarters the stock has only rallied 3 times on earnings day and on average moves about 2.8% higher or lower. The chart is also very weak with shares of WMT trading well below the Ichimoku Cloud. The cloud slopes lower and both of the major moving averages are well below the cloud. Our proprietary indicator, AlphaTracker, also shows that institutional traders are net short the stock moving into the earnings release. With all of these factors showing a bearish setup in WMT I will be looking to get short before the release.

Options markets are currently implying a move of around $2.00 by this Friday’s close which I can use to calculate a downside target around $55.30. Using this target I can select an options strategy.

Potential trade: Buying the WMT Nov 56.5-55.5 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot
Breakeven: $56.20

Macy’s, Inc (M) is a luxury retailer with omnichannel operations and 823 brick and motor stores. The company’s stock is currently trading around $47.00 in a 52 week range of $45.83-$73.61. The stock has been massively underperforming the market this year with shares selling off 28.5% year to date. Macy’s is set to report their most recently quarterly earnings report ahead of the open tomorrow and it looks like the stock might be primed for further downside on the report.

M has sold off 7 of the past 12 quarters on earnings day with an average move of around 4.70%. The options market is implying a move of around $4.65 by Fridays close meaning the expected move for M on earnings is around 9.9%. In addition to the historical weakness we see in M the chart also implies bearish sentiment going into earnings. Although the stock is getting a bit of a bid today the overall trend is still decidedly bearish. The stock is trading well below the Ichimoku Cloud and the cloud is strongly negatively sloping. According to the cloud M has not been in bullish territory since late July.
With both historical and technical metrics setting uip for a short I want to get short M on earnings with a downside target of $42.35.

Potential Trade: Buying the M Nov 13th Weekly 43.5-42.5 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot
Breakeven: $43.20

This trade offers a trader a better than 2-1 reward to risk setup.