Bargain Hunters Beware of J.C. Penney

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J.C. Penney Co. (NYSE:JCP) — This retailer is the leading mall-based family department store operator in the United States with over 1,100 retail locations and online shopping. But earnings have been slipping despite management’s introduction of “Fair and Square,” an “every day pricing policy” where prices have been lowered by about 40% and promotions have been stopped. The new strategy apparently has not been very well received by shoppers, and earnings in FY 2013 (ended Jan. 31) are expected to fall to $1.05 versus $1.25 in FY 2012.

The chart of JCP clearly shows a breakdown in May through a bullish support line on very high volume, which marked the bottom of a bull market channel at under $30. On July 19, the stock hit a bottom at $19.95 and rallied to its downtrend line and 50-day moving average at $23, where it reversed, failing to penetrate these two important barriers. Investors should sell JCP at the market while traders should consider shorting the stock.

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