More than eight years into a bull market and with all major indices trading near all-time highs, it’s difficult to find a stock that’s stuck in a downtrend — let alone one that has been pulling back for 10 years. But then comes the chart of J C Penney Company Inc (NYSE:JCP).
After topping out at $87.18 back in early 2007, JCP has been in a freefall. It recently hit a low of $3.31 before garnering some buyers at the decade-plus low, and the subsequent rally sent the shares back up to their 50-day moving average (the blue line) early last week.
But that was before lowered guidance slashed the shares again on Friday.
JCPenney has not traded above the 50-day moving average (blue on the chart) since early August, and it’s not having any luck getting back above it now. Trading action topped out at $3.78 on Monday and $3.79 on Tuesday, and in each instance the shares were unable to break though and close above the indicator.
By all accounts, the recent rally was nothing more than a countertrend bounce off a low that will fail every time it comes up on resistance. JCP remains a sell based solely on its chart, even without the bad news on Friday.
Measuring JCP’s Potential
But the technicals aren’t the only thing we look at when determining the potential of a stock. In fact, I have three criteria that I like to look at: technicals, fundamentals and intangibles — or the themes and catalysts changing the market in the here and now.
We already know that the technicals are a miss, so let’s see how JCP stacks up on the other two:
Fundamentals: Unfortunately, there is very little that’s attractive about this business right now, especially after the latest cuts to sales and profit forecasts. While there may ultimately be value in a $2 stock, this is something the optimists have been preaching since the downtrend began 10 years ago and earnings have yet to provide substantial evidence. Trying to catch a falling knife is never a good idea. Miss.
Intangibles: The big picture is equally as bleak. We all know that brick-and-mortar retailers are struggling, and it turns out that JCPenney is one of the worst in the group. Investing in a troubled stock is one thing, but investing in a troubled stock that’s also in a failing sector is a losing strategy. Miss.
Three strikes and you’re out. I’m avoiding JCP at all costs.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.