(This is an excerpt from an article I originally published on Seeking Alpha on March 10, 2012. Click here to read the entire piece.)
Department store J.C. Penney (JCP) caught my attention because of its relative underperformance two days in a row. As the S&P 500 has rallied back from a sharp one-day sell-off, JCP has continued a two-week downtrend that has now generated a bearish breakdown below the 50-day moving average (DMA) on high trading volume (relative to the 90DMA).
Source: FreeStockCharts.com
This steady sell-off is significant because JCP ignited fireworks after announcing on January 25, 2012 its new “Fair and Square” pricing strategy:
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JCP also rolled out a new advertising campaign to highlight its change in pricing. {snip}
The stock responded with a 19% surge the following day that eventually developed into a break to new 3 1/2 year highs. Shorts retreated, likely adding to the buying pressure on the stock. {snip}
Source: NASDAQ.com short interest for JCP
With the excitement wearing out on JCP – about half the heady gains from January 26 are now gone – I am guessing shorts will descend again upon JCP. Indeed, put buying soared on Friday across March, April, AND May expirations. {snip}
There are two very intriguing features of the put action in JCP. The open interest in May is already heavily weighted in favor of puts. Friday’s 16-to-1 put/call volume adds to an open interest favoring puts 2-to-1. These options expire AFTER JCP’s next earnings announcement on May 14. Clearly, a large group of traders and investors believe JCP’s new pricing initiative will suffer a poor start. {snip}
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Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on March 10, 2012. Click here to read the entire piece.)
Full disclosure: no positions