Mall anchor JC Penney Co Inc. (JCP) may be running out of time after three years of recovery plans and refinancing efforts have failed to restore the company’s damaged balance sheet or lift the stock off multi-decade lows. And, despite single-digit pricing, it could still offer attractive short sales for committed market players willing to hold positions into a death spiral that could signal bankruptcy.

The stock failed to recover from a 74-point slide during the 2008 economic collapse, breaking the bear market low in 2013 and dropping to a multi-decade low. Outdated brands and adverse demographics contributed to plunging same-store sales while the company failed to transition its legendary mail order business into e-commerce sales, allowing competitors to steal additional market share. Those failures have now come home to roost, triggering a wholesale exodus by retail and institutional players.

JCP Long-Term Chart (1993–2017)

JCP

The stock topped out in the low-30s in 1987 and dropped into a sideways pattern that persisted into a 1992 breakout that reached $59 in 1994. It then dropped into a second trading range, stuck between the lower-40s and upper-50s for more than three years, ahead of a breakout that topped out at $78.75 in 1998. That marked the highest high for the next nine years, ahead of a downtrend that accelerated to lower ground during the Dot.com bear market.

The decline reached a multi-decade low in single digits in December 2000, giving way to a two-legged recovery that reached the prior high at the end of 2006. It broke out into 2007, but the upside stalled quickly, posting an all-time high at $87.18, ahead of a downturn that picked up steam during the 2008 economic collapse. Sealing pressure finally eased in March 2009 at the 2002 swing low in the upper-teens, generating a recovery wave that stalled at the .386 Fibonacci selloff retracement level in February 2012.

A decline into 2014 broke the bear market low, finding support just below $5.00 in the first quarter of 2014. Ranges then contracted, yielding three years of narrow confused price action with resistance just above $12. The stock tested the downtrend low twice into 2017, with a third test now in progress. The extremely bearish technical setup suggests it will head to zero if that support level breaks.

JCP Short-Term Chart (2014-2017)

JCP

The first bounce off the 2014 low (red line) ran into a buzzsaw of selling pressure after mounting double digits in August 2014, triggering a reversal and decline that posted a higher low just below $6.00 (blue line) at the end of the year. That level got tested in January 2016, ahead of a second bounce into double digits two months later. Aggressive sellers took control once again, dumping the stock within 20-cents of that higher support level last week. Observant market players will now focus their undivided attention on the blue line because a breakdown will open the door to a trip into the deep 2014 low.

On Balance Volume (OBV) fell off a cliff in 2013 and bounced into 2014, recouping about half the distance between the high and low. It then eased into a long series of lower highs that signal long-term abandonment by retail and institutional capital. The indicator dropped into a test of the multiyear low in 2017, following dismal holiday results throughout the brick and mortar universe. It’s currently situated at that level, offering a tailwind for new short sales.

The Bottom Line

JC Penney has sold off into a third test at 2-year support in single digits, with a breakdown setting the stage for a decline that could signal bankruptcy. Market players considering short positions need to keep close watch at the $5.00 and $6.00 levels while maintaining tight stop losses in case of a short squeeze.

<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>

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