As I always encourage, you want to have stocks in your watch list that present you with trading opportunities regardless of what direction the market heads. On one hand, you may think the market is heading higher, but on the other hand; the market always reserves the right to change its mind! One such stock that may fit that description of giving you a trade either way would be that of J.C. Penny Company, Inc.
J.C. Penney Company, Inc. is a holding company. The company is a retailer, operating 1,106 department stores in 49 states and Puerto Rico. Its business consists of selling merchandise and services to consumers through its department stores and through the Internet website at jcp.com. J.C. Penney sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora inside jcpenney and home furnishings. In addition, its department stores provide its customers with services, such as styling salon, optical, portrait photography and custom decorating. As of January 29, 2011, its supply chain network operated 26 facilities at 18 locations. Its network includes 13 store merchandise distribution centers, five regional warehouses, four jcp.com fulfillment centers and four furniture distribution centers.
To review J.C. Penney’s stock, please take a look at the 1-year chart of JCP (J.C. Penny Company, Inc.) below with my added notations:
JCP has created a couple of short-term price levels over the last month and a half. First, JCP has formed a clear resistance area at $27.50 (red). In addition, the stock has also been climbing a short-term, up-trending support level (green). These two levels combined have JCP stuck within a common chart pattern known as an Ascending Triangle that will eventually have to break one way or another. Most traders will choose to wait to see which level breaks before entering a position
A break above $27.50 should signal higher prices for JCP, but were the stock to break the up trending support line instead, JCP will most likely hit new 52-week lows.
The Tale of the Tape: JCP is currently stuck between two very important levels for the stock: The up-trending support and the $27.50 resistance. A long trade could be made on a break above the $27.50 level with a stop placed under the level. On the other side, you could enter a short trade on JCP if the stock breaks below the up-trending support level. In that case, a stop should be placed above the level of entry.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT