Is This Retailer Being Removed From the Clearance Rack?

J.C. Penney (NYSE:JCP) has experienced a difficult year to say the least. The 110-year old retailer competes in a highly consumer sensitive industry, and is in the process of a major turnaround. Shares were taken to the cleaners, but are on pace to log a double digit gain this week.

What is the Catalyst? 

The Texas-based retailer struggled in its efforts to effectively communicate a reduction of promotion events in favor of everyday low prices, but recently returned to offering special deals to attract more shoppers. Earlier this month, J.C. Penney launched a “friends and family” deal, providing 20 percent off merchandise.

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The coupon further indicates that chief executive officer Ron Johnson, former Apple (NASDAQ:AAPL) marketing executive, may be reversing his stance on no sales or coupons. The retailer is also giving free haircuts to kids every Sunday and gave a $10 gift coupon to loyal customers in the fall.

Who Took Notice?

JPMorgan Chase (NYSE:JPM) analyst Matthew Boss said the recent promotions by J.C. Penney are “clearly indicating a departure from the long-term vision.” He also expects Johnson to provide more details publicly about a change in strategy and notes that his “flexibility” is “encouraging,” but too soon to tell if customers will come back to the department store. Boss has a Neutral rating on the stock.

JPMorgan is not the only firm weighing in on J.C. Penney…

Oppenheimer & Co. also believes J.C. Penney is on the right track by offering more promotions. Analyst Brian Nagel writes, “Recent price events at J.C. Penney, while at odds with Mr. Johnson’s initial stance on promotions, we believe will successfully drive better traffic while maintaining the integrity of new brands in JCP stores,” according to Bloomberg.

CHEAT SHEET Analysis: Technicals on the Stock Chart are Still Weak

Deutsche Bank added to the uplifting news on Wednesday by adding J.C. Penney to its short-term buy list, citing a solid balance sheet and a “high likelihood of a short squeeze.” A short squeeze may be well underway. Shares of J.C. Penney surged more than 15 percent in only a week. As of the end of November, about 43 percent of the company’s float is held by short sellers. However, as the chart below shows, shares are still in the red for the year.

J.C. Penney’s stock price is down about 40 percent year-to-date. In comparison, shares of Gap (NYSE:GPS), Macy’s (NYSE:M) and Saks (NYSE:SKS) have gained 70 percent, 20 percent and 10 percent this year.

Although J.C. Penney is making progress on the stock chart and appears to be flexible on its no coupon stance, it is simply too early to decide if the current rally is a true shift in sentiment. Shares are currently near resistance at the 50-day moving average, and more resistance remains at the 200-day moving average. Furthermore, J.C. Penney has only rolled out a handful of stores with its new boutique concept.

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