Stocks continue to hold near their all-time highs despite discouraging GDP data out of the Eurozone.  Growth data released earlier today showed that the recessionary conditions in the Eurozone continue, and at rates that are worse than analysts were initially expecting.  First quarter GDP in the Eurozone came in at a decline of -0.3%, worse than the anticipated -0.1% drop.  This data has done little to damage market sentiment however, as the S&P 500, FTSE 100, and German DAX all continue to trade near their highs for the week, month, and year.  In part the negative results in Eurozone growth have been balanced by positive headlines from the UK, which showed that the Bank of England is upwardly revising its growth outlook for 2013.

Retailers Create This Week’s Earnings Story

Macro data is getting most of the attention in the early part of the week, as the earnings calendar starts to slow.  We did have earnings results from Macy’s (M), which showed a 20% increase in first quarter profits.  This came with the announcement of a 25% raise in dividend payouts and share buybacks totaling $1.5 billion.  Company results showed earnings of $217 million (equal to 55 cents per share) for the quarter.  Same-store sales rose by 3.8%.  The consensus estimates were looking for earnings of 53 cents per share.  This is a substantial increase from the $181 million in profits (43 cents per share) from the same period last year.  This is the fifth straight quarter Macy’s has beat analyst earnings estimates and this puts the stock in a strong position to maintain its rally into the third quarter.

After the closing bell bell on Thursday, JCPenney (JCP) will release its first quarter earnings in a week dominated by companies in the retail sector.  A large cross section of the market is looking for JCP to disappoint in its profit performance, given the consistently weak activity we have seen in recent quarters.  Analysts are looking for an earnings drop of 86 cents per share.  If the company does manage to disappoint these estimates, we will likely see major declines in JCP, as the overall momentum in stock prices show little reason for excitement.

Chart Perspective

Macy’s (M):

Macy’s is clearly showing an impressive rally with little in the way of correcting pullbacks.  The momentum is clearly to the topside at this stage but with prices at such elevated levels, longs are risky at these prices.  Better approach is to wait for a pullback to 45.25, as this is the 23.6% Fib retracement of the latest rally, as well as historical resistance turned support.  A downside break here turns the bias sideways.

JCPenney (JCP):

JCP is showing a well defined downtrend channel, en route to a test of long term historical support at 12.45.  Prices have shown a small rally in recent sessions, a this is creating a new opportunity for shorts into the 18.80 level.  Risk to reward heavily favors the downside at this stage, as any rally above 20 will invalidate the downtrend channel, creating an good area for stop losses.