J. C. Penney Company, Inc. (JCP) shareholders initially shook off Sears Holdings' Oct. 15 bankruptcy filing, but the imperiled stock has continued to lose ground into Black Friday week, dropping to the lowest low since at least the 1960s. The Nov. 15 earnings release didn't improve the dreadful long-term outlook, with the company lowering 2018 guidance due to a 5.4% quarterly comparable sales decrease.

The retailer's better-positioned rivals have also missed quarterly numbers in the past few weeks, raising concerns about an industry slowdown at the same time that China tariffs could ramp up to 25%. These companies are highly dependent on cheap Asian goods to enhance razor-thin margins, and the escalating trade war has the potential to hurt them badly at the same time that analysts are predicting a broad-based economic slowdown.

The company still expects positive cash flow for the year, thanks to cost-saving initiatives and a big supply of corporate bonds that won't reach maturity until the middle of the next decade. This reliquification suggests that stores will remain open in coming years, despite the dark cloud generated by Sears' descent into oblivion. Even so, it will be still tough for this old school American retailer to survive if the U.S. heads into a full-blown recession.

It's nearly impossible to recommend buying J. C. Penney stock at this juncture, even for long-term value players, due to the high debt load and aging economic expansion. Retailers fall squarely into the cyclical stock category, vulnerable to the ups and downs of the U.S. economy. The 2018 tax cuts may have extended the current cycle, but recent market gyrations reflect growing concerns that harder economic times could be dead ahead.

JCP Weekly Chart (2014 – 2018)

The stock posted an all-time high in the upper $80s in 2007 and turned sharply lower, dropping to an eight-year low at $13.71 during the 2008 economic collapse. It bounced into the $40s in 2012 and reversed once again, breaking the bear market low in 2013. That selling wave reached support at the 1980 low (red line) in 2014, generating a weak bounce, followed by a May 2017 breakdown that has dumped the stock into a series of multi-decade lows.

The historic downtrend hasn't tested the 50-month exponential moving average (EMA) since 2012, highlighting the severity of selling pressure during one of the strongest bull markets on record. The selling wave since 2016 has tracked a declining channel, with price spending the past nine months hugging channel resistance that has now dropped to $1.50. That's better than the alternative, with channel support now sitting at an unreachable minus $2.60.

An upside channel break would signal a minor relative strength increase but should not be viewed as a major buying opportunity because the logarithmic chart view places heavy resistance between $2.30 and $2.60. The 50-week EMA at the top of this price zone has ended recovery waves going back to the first quarter of 2016, so a breakout above that level might offer a more reliable precursor for higher prices.

The Bottom Line

J. C. Penney has dropped into a series of new lows, raising bankruptcy fears, but the company's strong cash position predicts a more zombie-like outcome, with operations continuing into the next decade but failing to meet growth objectives that would raise the stock's value. As a result, it makes little sense to add this issue to conservative or aggressive portfolios.

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