Chart of the Day – $JCP vs. $M

by Enis February 26, 2013 3:27 pm • Commentary

Here’s a preview of what I’ll be discussing on Talking Numbers today between 3:20 and 3:30 pm EST on CNBC:

Macy’s reported better than expected earnings, and increased guidance, sending the stock up more than 3% today.  JC Penney reports earnings after the close tomorrow, and the market is pricing in a massive 15% move.  Where do the charts stand on these two classic American retailers?

The first chart is a 3 year chart of JCP:

3 year chart of JCP, Courtesy of Bloomberg
3 year chart of JCP, Courtesy of Bloomberg

The $19 level had acted as important support until JCP broke it on massive volume after its last earnings release in November.  However, the fact that JCP recovered that important support level after a couple months below it indicates that it could have been a false breakdown.  Add to that the 42% short interest, and the $19 level should act as renewed support going forward.  As a result, the risk/reward favors the long side here in my view.

How about Macy’s?  It’s a much different 3 year chart:

3 year chart of Macy's, Courtesy of Bloomberg
3 year chart of Macy’s, Courtesy of Bloomberg

From Jul 2010 to Apr 2012, it was in a strong uptrend, more than doubling over that period.  However, the stock has stalled since Apr 2012, even though the broader market has made new highs.  The $42 level is important resistance that has rejected a Macy’s advance several times in the past year.  Given that the stock is only 5% from that important resistance level, and there is little to indicate an imminent breakout, the risk/reward favors the bears here.