JCP Stock – JCPenney Is Set Up for a Contrarian Trade

jcp stock - JCP Stock – JCPenney Is Set Up for a Contrarian Trade

Source: Mike Mozart via Flickr

Shares of department store operator J C Penney Company Inc (NYSE:JCP) rallied Tuesday, resulting in constructive price action that should give traders hope for newfound upside momentum in JCP stock.

beatthebell_185x185While the JCPenney stock price remains choppy, and while the company’s bigger-picture issues certainly haven’t gone anywhere, active investors still have a good risk/reward situation on their hands.

When JCP reported its latest batch of earnings on May 13, the company came in with a narrower loss than analysts forecast. JCPenney lost 55 cents per share — a significant improvement on a year-over-year basis. Sales came in roughly in line, but also were better than the year-ago quarter. Gross margins had widened, too, by 330 basis points to 36.4%.

Despite somewhat upbeat numbers, however, analysts in the aggregate remain concerned at best about JCP stock, which coupled with the improving technical picture might argue for a contrarian play (bullish).

Looking at the daily chart of the SPDR S&P Retail (ETF) (NYSEARCA:XRT), of which JCP stock is a component, we see that the rally in recent days has pushed it back up to the previous highs from April, all the while holding above its rising 100-day simple moving average (blue line). While a higher high now looks likely for this ETF, the drop in volume on the latest rally is concerning and needs to be watched closely.

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JCP Stock Charts

Getting to the charts of JCP stock itself, the multiyear picture gives us lots of much-needed perspective.

JCPenney’s troubles over the past eight years or so have clearly brought the stock to its knees, and last September, shares broke below the 2009 lows (black horizontal), where they have remained ever since. However, JCP did make a notable higher low last December versus its February 2014 lows.

On the upside, a defined price target stands out, namely at the confluence of the previous black horizontal support line and the diagonal resistance line (red dotted line) that spans all the way back to the 2007 highs.

To be sure, this is a large upside target to have for JCP stock at this juncture, and thus it is better used as an area of reference.

jcp stock charts weekly
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On the daily chart, we see that ever since the bigger-picture higher lows from last December, JCP stock has been pushing higher and making another series of higher lows. Once JCPenney pushed back above its 100-day MA (blue line) in February, it held above it as support ever since. Tuesday’s 3% rally attempted to push the stock past the diagonal resistance line from last September’s highs, but so far, it hasn’t succeeded.

The onus as such remains on the bulls to see if they can hold their ground further in coming days. One concern here is volume — namely, Tuesday’s volume in JCP stock left plenty to be desired.

jcp stock chart daily
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Active investors and traders could look to buy JCP stock at $8.70 or higher with a first price target near $9.30, while any quick bearish reversal of Tuesday’s gains would call off the trade until further bullishness appears.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, TheEssence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.

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