Several large retailers are scheduled to report earnings this week, among them JCPenney (JCP). The JCPenney earnings report is due out Wednesday after the close, and Wall Street’s expectations for profits — much like JCP stock — are low. Analysts on average are looking for a loss of 80 cents per share on revenues of $3.9 billion. (However, that EPS estimate is rosy compared to the $1.95 loss JCP suffered in the year-ago period.)
Not many (if any) positive catalysts have surfaced for JCPenney recently, and JCP stock as a result is lower by nearly 40% in just the first few weeks of the year, and now trades below the $6 mark.
Last Wednesday, Citigroup initiated coverage of JCP stock with a “neutral” rating and a price target of $6.50. The analyst at Citigroup was encouraged by what he considers to be a number of initiatives that JCPenney has in store to bring foot traffic back to its shops and also improve margins, such as improvements to the home department and bringing back private labels.
JCP’s weekly chart is one sad story, but also a lesson that investors trying to buy the dips in any stock can learn, regardless of the situation.
Ever since making an important lower high in March 2012, JCP stock has been sliding lower nonstop and hasn’t offered the bulls anything more than a few consecutive days of respite. So when it comes to making a plan to trade this stock after an earnings announcement, it is important to keep this long-term chart in mind.
Simply put: Until such time when JCP stock breaks at least above one simple resistance line, it’s best to leave it alone.
Through a pure long-term technical lens, now that JCP stock is trading below the $9 area — which was its previous all-time low from 2001 — it wouldn’t be inconceivable that it is ready to put gears slowly in reverse and begin to work its way higher, just to frustrate the bears. However, I don’t expect it — I’m just trying to be open to all possible scenarios as we head into the JCPenney earnings announcement.
On the daily chart — which is where my focus will be once JCP begins trading Thursday — after its late Wednesday earnings report, the first level of resistance is near $6.20.
If it can somehow overcome this level as a post-earnings reaction rally, JCP stock might just get enough near-term momentum to push higher toward the $7 area in the coming months, which is where the stock’s 50-day simple moving average (yellow) is coming in. This also would result in the 2012 downtrend (black) being overtaken.
On the other hand, if JCP stock drops or doesn’t move much after earnings, it is best left alone.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.