Can J. C. Penney Bounce Higher From These Prices?

With shares of J. C. Penney (NYSE:JCP) trading around $15, is JCP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

J. C. Penney operates department stores in the United States and Puerto Rico. The company sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products, and home furnishings. It also provides various services, such as styling salon, optical, portrait photography, and custom decorating. Through its products and services, J. C. Penney is able to fulfill a span of consumer needs and interests at reasonable prices.

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T = Technicals on the Stock Chart are Weak

The last year has been a bad one for J. C. Penney as it has seen an onslaught of selling. Currently, the stock is trading near multi-year lows that acted as a buy point when last reached. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, J. C. Penney is trading below all of its declining key averages which signal neutral to bearish price action in the near-term.

JCP

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of J. C. Penney options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

J. C. Penney Options

74.2

76%

75%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on J. C. Penney’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for J. C. Penney look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-560.53%

16.42%

-1057.14%

-367.86%

Revenue Growth (Y-O-Y)

-28.41%

-26.57%

-22.63%

-20.06%

Earnings Reaction

-16.96%

-4.84%

5.88%

-19.71%

J. C. Penney has seen declining earnings and revenue over the last four quarters. From these figures, the markets have been very disappointed with J. C. Penney’s last four earnings announcements.

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P = Poor Relative Performance Versus Peers and Sector

How has J. C. Penney stock done relative to its peers, Macy’s (NYSE:M), Kohl’s (NYSE:KSS), Sears (NASDAQ:SHLD), and sector?

J. C. Penney

Macy’s

Kohl’s

Sears

Sector

Year-to-Date Return

-53.72%

9.9%

-4.36%

-13.48%

18.64%

J. C. Penney has been a been a relative underperformer year-to-date.

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Conclusion

J. C. Penney provides products and services that consumers and businesses demand and enjoy. The stock has taken a beating over the last year as earnings and revenues have fallen short only to disappoint investors. Relative to its peers and sector, J. C. Penney has trailed its competitors and sector by an extremely wide margin. Let the dust settle and STAY AWAY from J. C. Penney stock for now.

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