JCP (J.C. Penny Company Inc.) might be ultimately headed down the path of bankruptcy but there have been & will likely continue to be bear market rallies to be had along the way. With short interest in this unloved retail stock soaring since the beginning of the year, coupled with the fact that the stock has just recently printed the second divergent low of the low of the year (with the previous divergent low followed by a 33% rally in the stock) as well as a break above the downtrend line generated off the early August highs, the odds of a short-squeeze are starting to increase.

Other than today’s falling wedge breakout, which is suspect IMO as the breakout is not confirmed with an increase in volume (of 1.5x or better the average volume), another potential catalyst that might spark a short-covering rally would be a positive earnings report and/or forward guidance from the company when they report earnings on November 10th, before the market opens. As earnings are only 3 weeks away coupled with the precarious fundamental position of this retailer (translation, very aggressive trade) JCP is being shared as an unofficial trade idea. I’ve also noted a stealth rally among many retail stocks in recent months with a fairly consistent pattern of many retailers, especially the apparel stocks, rallying sharply after reporting earnings.

Unlike most unofficial trade ideas, I have listed suggested price targets for this trade; T1 at 4.24 (actual resistance at 4.29) and T2 at 4.93 (actual resistance at 5.01). An objective stop could be place below the recent lows or higher, depending on one’s entry price, preferred price target(s) and typical stop allowance or preferred R/R. Due to the aggressive nature of this trade, the suggested beta-adjustment for a position, especially if held into earnings, would be no more than 0.50. Also note that the stock is likely to grind around over the next 3 weeks, possibly with increased volatility, ahead of the earnings report.