J.C. Penney Remains in a Major Downtrend

 | May 17, 2017 | 12:04 PM EDT
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J.C. Penney (JCP) continues to struggle as its downtrend continues. Our trending indicators are still pointed down even with a bullish divergence between prices and momentum the past few months. The volume of trading has been heavier since January telling us that traders and investors have been aggressive sellers and have voted with their feet.

Are prices finally at a bargain price or is there still further risk? Let's check the charts and indicators.

In this daily bar chart of JCP, below, we can see a high back in August and a lower high in December. From mid-December prices came under increasing pressure. In December prices broke below the declining 50-day and the bearish 200-day moving average lines. 

The daily On-Balance-Volume (OBV) line peaked in December and has been weakening ever since. There is a bullish divergence since January between the lower lows in price and the higher lows on the momentum indicator however this has not produced a recovery rally. When markets ignore bullish signals it is a sign that things are really weak.

In this weekly chart of JCP, below, we have mostly bearish signals. JCP is below the declining 40-week moving average line as it has been for the past five months. The $6 level was key support but that has been clearly broken and the $6 area should now act as resistance. The weekly OBV line has been declining since early December and tells us some significant liquidation has been seen.

In the lower panel is the only light at the end of the tunnel -- the 12-week momentum study is starting to show a bullish divergence versus the price action. This bullish divergence could go on longer and it could get overridden by the downtrend.

In this Point and Figure chart of JCP, below, we can see that $5.00 was minor support and it was broken. The $6.50 to $11.00 area now represents a major area of resistance. If JCP can bottom it will likely need a long repair process.

Bottom line: JCP could have some knee-jerk bounces and oversold rebounds but they are likely to be short-lived as the dominant trend is still down.

Columnist Conversations

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I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
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