Tomahawk, WI 9/05/2013 (BasicsMedia) – J.C. Penney Company, Inc. (NYSE:JCP) (Closed: $13.50, Up: 6.13%) opened with a gap up on Wednesday and kept gaining on that for the rest of the session. The volume at 32 million was more than the double the average of 15 million, showing the enthusiasm of the buyers. For the last days, it kept forming Doji candles in the daily chart implying indecision on the part of the participants. Today’s price action formed a solid green candle showing the dominance of the bulls.

The stock has been in a huge bear market since the early part of 2007. The interesting point is that the stock underwent 2 cycles of bull and bear markets in the same period when most of the other stocks underwent only one or one and a half. The first bull cycle in the stock was in 1988 – 1998, when it reached a high of $78.75 from its 1992 low of $20.50. It topped out much earlier than the general market in the infamous IT bubble and the drop from the top was highly accelerated when the bubble burst. The bear market of 1998 – 2000 wiped out all the gains of the previous years and then some. The stock bottomed out earlier too, at $8.63 by the end of 2000 and began the next bull market. It was in a leading cycle. It touched a new lifetime high at $87.18 by early 2007 in a one way rally with insignificant corrections only. But the vicious bear market of 2007 – 2008 once again took all the gains away and the stock dropped like a stone to make a low at $13.95 in 2008. It created a Double Bottom pattern in the early 2009 and tried to recover. The corrective rally was characterized by sharp rallies and sharp drops which finally ended at $43.18 in 2012. The next fall, the last one broke the 2009 bottom and touched a low of $12.12 just last month.

The last drop from the 2012 top is clearly subdivided in 3 legs – two drops punctuated by a countertrend rally. The last leg, the fall from $32.55 is showing a contracting nature and tracing a pattern called an Ending Diagonal or a Falling Wedge in the process. Every fall within this pattern is smaller than the previous one. This is a clear sign of the exhaustion of the bearish momentum and a potential sign of a probable reversal.

But any reversal would be confirmed only by a break of the upper trendline currently at $15.70. The short term challenge would be to overcome the supply zone of $13.70 – $14.50.

The bulls would be interested on two points. First one would be the volume pattern which shows a clear accumulation in the lower levels. The rising volume in the recent time clearly points to that. The other would be the multiple positive divergences in the indicators. Daily RSI has broken out of a small bullish Inverse Head & Shoulders pattern and the MACD – Histogram is hugging the zero line even at the lowest point of the price.

Aggressive investors could buy the stock above $14.50 and add more above $15.70 for a target of $32 level in the coming months.

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