JCP has been one of the most hated stocks over the past few years. Easy to hate too, since its stock has languished near 20 year lows:
The stock has stabilized, though. Mike Ullman, the CEO who replaced Ron Johnson, announced a return to JCP’s old ways. The company arranged new financing from a coterie of banks. And George Soros took a 8% stake in the retailer the spring.
The credit market in JCP actually bottomed back in February, far before the stock’s bottom in April. That was the first sign that got us interested on the long side, and we’ve had two successful trades here and here) in JCP on the long side this year.
A lot of the recent rally was due to short covering. The short interest as a percentage of float has come down from around 45% earlier this year to around 25% today, its lowest level in the past year. Here is the 2 year chart of short interest in the stock:[caption id="attachment_27140" align="alignnone" width="643"] 2 year chart of short interest in JCP (shares), Courtesy of Bloomberg[/caption]
There are some encouraging fundamental signs as well. Some analysts project same-store-sales to turn positive in the second half of this year for JCP. Year-over-year comparisons become much easier. Some pickup has also been attributed to the return of perpetual discounting.
But the return to profitability still implies a long road ahead for the company. I thought about a new long biased trade today based on the technical setup, with the stock about to meet its rising 50 day moving average (around 17, in pink):[caption id="attachment_27141" align="alignnone" width="627"] 1 year daily chart of JCP, Courtesy of Bloomberg, 200 day ma in black, 50 day ma in pink[/caption]
The 200 day ma in black continues to act as resistance, and is currently around $20.
The trade I considered was selling the July 18/16 put spread around 0.90 if it got there, but I decided to hold off. The 50 day might act as support, but the major support going forward is around 15.50-16. The large decline in the short interest also decreases the power of that upside catalyst. The stock has found sellers in the past month even as the news has become more positive.
Add it all up, and I will likely get involved if the stock gets to 16 on the downside, but view risk/reward with the stock around 17.50 as only decent, not great.