Mall anchor J. C. Penney Company, Inc. (JCP) reports earnings before the opening bell on Thursday, May 17, as an "option on survival," as the stock is trading between $1 and $3 per share. Investors buying a stock in this trading range are betting that the company will survive its current woes and eventually thrive once again. In these situations, it is wise to invest only funds that you can afford to lose completely if the stock becomes worthless.
J. C. Penney stock closed Tuesday, May 15, at $2.91, down 7.9% year to date. Shares of J. C. Penney are solidly in bear market territory at 38.7% below the 2018 high of $4.75 set on Feb. 27. The stock is also 7.8% above its 2018 low of $2.70 set on May 8. (See also: Billionaire David Einhorn's Greenlight Bought 6M J. C. Penney Shares: 13F.)
Analysts expect J. C. Penney to post a loss of between 19 cents and 22 cents per share when the company reports results in the pre-market hours on Thursday. The mall anchor reported better-than-expected earnings on March 2 but generated only a one-day bounce in the stock. It remains to be seen whether a larger-than-expected loss would be tolerated by investors, particularly in the case of worse-than-expected revenue. However, the retailer has had some success increasing online sales and improving the in-store shopping experience, which could make this "option on survival" a good investment choice.
The daily chart for J. C. Penney
J. C. Penney has been below a "death cross" since Nov. 14, 2016, when the stock closed at $9.52. This is obviously not shown on the 52-week daily chart. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving average, indicating that lower prices lie ahead. This tracked the stock to its 52-week low of $2.35 set on Nov. 8, 2017. The stock is now below its 50-day and 200-day simple moving averages of $3.08 and $3.53, respectively, but the stock has held my monthly value level, which is the horizontal line at $2.79. The trading upside is to the horizontal line at $3.92, which is my semiannual pivot.
The weekly chart for J. C. Penney
The weekly chart for J. C. Penney is negative but oversold, with the stock below its five-week modified moving average of $3.84. The stock is well below its 200-week simple moving average at $7.13, which is the "reversion to the mean," last tested during the week of Dec. 16, 2016, when the average was $9.70. The 12 x 3 x 3 weekly slow stochastic reading is projected to fall to 10.43 this week, down from 12.11 on May 11 and well below the oversold threshold of 20.00.
Given these charts and analysis, investors should buy J. C. Penney shares on weakness to my monthly value level of $2.79 and reduce holdings on strength to my semiannual pivot of $3.92. (For additional reading, check out: The Top 4 J. C. Penney Shareholders.)