Will A Move Over $5 Finally Get JC Penney Going?

Battered retail stock J C Penney Company Inc. JCP is up over 7 percent Thursday after the company announced it will be adding toy shops inside all its brick-and-mortar locations. JC Penney has doubled its online toy offerings in the past year in an effort “to compete with pure e-commerce rivals.” The company is hoping that exploring new toy categories such as bicycles and trampolines will help turn around its slumping sales.

While Thursday’s news certainly got the stock moving in the right direction for JC Penney bulls, it remains below the critical $5 technical resistance level.

JC Penney dipped below $5 for the first time back in May after the company reported its Q1 financials. Since that time, it has faced heavy selling pressure every time it approached the key psychological level. For now, JC Penney appears to have found technical support at around $4.25, but bulls can’t be convinced of a technical turnaround unless the stock can once again breach $5.

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JC Penney’s next major fundamental catalyst is its Q2 earnings report, which is expected out on Aug. 11. In the meantime, the stock will likely trade mostly on technicals, and traders will be watching the $4.25 and $5.00 levels closely.

If Thursday’s positive momentum does carry over in coming days, a breakout above $5 could send shares soaring as short sellers cover their positions. JC Penney currently has an extremely high short percent of float of 41.2 percent, according to shortsqueeze.com.

A move above $5 could also open the door for buying from institutions that are restricted from owning shares priced below $5. However, institutional buying will likely only come if the company’s Q2 earnings report shows it has turned the corner from a fundamental perspective as well. JC Penney has missed consensus revenue estimates in each of the past five quarters.

Joel Elconin contributed to this story.

________ Image Credit: By Michael Rivera (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons