Is JC Penney breaking out?

• Posted by Greg Harmon
• on August 31st, 2015

The stock market has been a volatile place the last week or so. After a period of 6 months of the lowest volatility ever that may not come as a surprise. Unleashing the powder keg. A new week and a settled market (for a day at least)leaves some time to peruse for stocks that have had goo relative strength. One of those is JC Penney ($JCP). It did pullback with the market but is now back higher and close to making a new 10 month high. Is it time to buy it?

The chart below shows the price action from last week. A drop to the March support and a rapid rise back higher. Whoever caught that bottom at 7.21 six days ago is very happy up 27%. But what about the rest of us? Is it finally time to buy? There is a case to be made for both the buy side and the sell side.

First the buy side. I have already mentioned the relative strength compared to the rest of the market. But there is more. The RSI is bullish and climbing and the MACD turning up. These support more upside. The Bollinger Bands® are opening as well to let it rise. A break f the channel has very little recent price history between 9.40 and 11.

But the stall at the channel top is one reason it may not be ready. The possible Evening Star is a reversal pattern if confirmed lower Tuesday. That may give a trade back to the mid line of the channel. Another is that the price is outside of those opening Bollinger Bands.

The best thing to do with a chart like this (and there are many at resistance after the moves back higher last week) is to watch how it reacts to resistance. On a break to the upside it can be bought. A rejection lower is a short sale. This illustrates one of the key principles of technical analysis. It helps with risk management to define points of reflection.

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