J C Penney Company Inc (NYSE:JCP), after an explosive rally off the January lows, looked extremely exhausted by early March and was in desperate need of a pause. Well, JCP stock has done just that over the past few weeks, and by trading sideways to lower for a while, it has worked off its most severe overbought readings.
While JCP could continue to consolidate this year’s early rally, the risk-reward for quicker traders that leaned against JCPenney’s sharp overbought readings has diminished notably, so there, at least partial profits can be taken.
On March 14, I said that those long the stock should take profits, and I shared a trade idea to the short time. I discussed a price target near $10; well, JCP came within about a quarter of that this week, so that qualifies as the trade target as being hit.
Now that JCP stock has undergone some much-needed consolidation, let’s walk through the charts again to see where things stand.
JCP Stock Charts
On the multiyear weekly chart that looks all the way back to the 2007 highs we see that JCP stock earlier this year overcame a significant hurdle when it pushed above the red-dotted trend line for the first time. As I offered on March 14th, this was a positive feat for the stock not to be underestimated through the medium and possibly longer-term lens and I remain of that opinion today.
The strong rally from January into early March however also brought JCP stock right into horizontal resistance, i.e. former support in the low $ teens as the stock looked very stretched from a momentum perspective. The longer the stock now consolidates above the red dotted line and below the black horizontal the better the odds ultimately are of a push higher into the $20s.
On the daily chart we see that from its early March peak JCP stock has now ‘corrected’ about 15% and is also mean-reverting closer back to its yellow 50 day simple moving average. The stock had gotten very stretched above this moving average in early March and that was one reason for my call to short the stock or take profits for those that were long the stock. On this chart now we however also see that JCP stock could continue to revert lower into the $9 – $10 range and closer still to its 50 day moving average.
Traders that are short the stock or long puts could look to either take full profits or partial profits.
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