ANATOMY OF J. C. PENNEY TRADE

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Most investors try to profit only when stocks go up.  Sophisticated investors profit both as stocks go up and when stocks go down.

One of the problems many investors face that the resources to help them to profit from stocks going down are rare.  One  such well-respected rare resources is ZYX Short Sell Change Alert .

We have just completed a trade that profited from fall in J.C. Penney stock (JCP).  Reproduced below are the posts from ZYX Short Sell Change Alert to help investors understand anatomy of this trade.

TAKE PROFITS ON JCP

April 11, 2012

Most investors may consider taking profits on JCP and exiting the trade right here at $33.45.

CITI POUNDS THE TABLE ON JCP

March 30, 2012

Today Citi has been pounding the table on JCP with bullish pronouncements. THe market is up but JCP did not hold its strength.

The way a stock trades on a bullish recommendation from a major firm gives us lots of useful information.

What to do now?

Those in the position and have taken partial profits may continue to hold.

Those in the position and have not taken partial profits may consider taking partial profits right here.

Those not in the position may not enter here.

CONSIDER TAKING PARTIAL PROFITS ON JCP

March 15, 2012

Consider taking partial profits on a 5% tranche on JCP right here at $36.11.

At this time consider continuing to hold the rest of the position.

THANK YOU CLEVELAND RESEARCH — DECENT PROFITS IN JCP

March 1, 2012

Yesterday Cleveland Research got the ball rolling on JCP with a report that the company is losing market share.  JCP has broken the recent support  and is now down strongly.

Our models correctly anticipated market share loss weeks ago. This allowed us to put in some  shorts near the recent highs. Now most subscribers should have decent profits in the position.

Consider continuing to hold as bigger profits may still be ahead.

Those not in the position may not enter at this time.

JCP REPORTS EARNINGS

February 24, 2012

JCP beats by $0.07, misses on revs; reaffirms FY13 guidance (41.93 ) : Reports Q4 (Jan) earnings of $0.74 per share,  revenues fell 4.9% /year to $5.42 bln vs the $5.5 bln consensus. EPS excludes restructuring and management transition charges which totaled $0.56 per share, as well as the financial impact of actions taken to execute JCP’s new pricing and promotional strategy, which lowered fourth quarter earnings by an additional $0.59 per share.   Comparable store sales for the fourth quarter declined 1.8 percent. JCP reaffirms guidance for FY13, expects non-GAAP EPS to meet or exceed $2.16.   Capital expenditures of approximately $800 million are expected  for the year to support JCP’s  transition.

Those in the position may continue to hold.

Those not in the position may wait to see markets reaction to the earnings and the conference call before initiating a position.  We will keep you informed when the time is right to scale in a position.

FITCH LOWERS JCP

February 21, 2012

Fitch Ratings has downgraded its Issuer Default Ratings on J.C. Penney Co., Inc. and J.C. Penney Corporation, Inc. to ‘BB+’ from ‘BBB-‘. The ratings reflect significant execution risk for J.C. Penney over the next 12 -18 months as the company rolls out its new pricing and promotional strategy and addresses fundamental areas such as merchandising, costs, and investments in its store base.

Fitch is a major debt rating agency.

Fitch is rating JCP debt not its stock. Debt analysts are usually smarter  than equity analysts.

Those in the stock may continue to hold.

Those not in the stock may consider scaling in a 5-10% tranche  on bounce over 42.35.

Please be aware that JCP reports earnings this week and shares may be volatile.

We will stick to the plan of adding if shares move here. Another up leg caused by short squeeze is still possible. Therefore from risk control perspective, it is  important to keep quantity small.

MORE ON JCP

February 15, 2012

In the recent days two of the strongest segments in the market have been retail stocks and the stocks with high short interest.

JCP falls in both of these segments. This has resulted in JCP continue to levitate.

There is no change in our plan of adding to the position if JCP goes higher.

Those not in the stock may enter a 5% tranche right here.

JCP CEO SELLS

February 1, 2012

According to SEC filing, JCP CEO sold 777.2K shares at $41.42, worth $32 mln. The filing notes that the amount of shares sold represents shares used solely to satisfy tax withholding obligation upon vesting of time-based restricted stock units granted to Mr. Johnson upon commencement of his employment with the Company in replacement of equity awards granted to him by his previous employer that would have vested in March 2012. Mr. Johnson continues to hold the remaining 892,978.913 vested shares from his award as an investment in the Company.

WHAT IS HAPPENING WITH JCP?

January 28, 2012

J.C. Penney Co., Miles City

J.C. Penny (JCP) is undergoing a transformation.

J.C. Penny brought in Ron Johnson, the ex chief of stores at AAPL, to revive its business.

J.C. Penny scheduled an Analysts Day on Jan 26, 2012. The stock had been levitating for a couple of months in anticipation of Johnson making a great presentation. By almost any measure at $33, J.C. Penny was one of the most expensive major retail stocks.

On Jan. 25, Johnson made the rounds and leaked his plan ahead of the big event on Jan 26.  J.C. Penny will in the future be known as jcpenny. There is a new logo to evoke the image of the American flag. The stores will have a number of small boutiques as opposed to rows of racks. Most importantly, J.C. Penny will introduce a simplified promotion and pricing structure.

Now that the plan is known and the stock did not go up, hedge funds aggressively short sold the stock on Jan 25. Nine out of 10 times this technique is profitable.

On Jan. 26, every time the stock would fall as it should have, one or more buyers would aggressively buy it and run up the stock. This is a common technique used to cause a short squeeze. Watching this buying, short sellers started buying to cover generating upward pressure on the stock. The higher the stock went, the more short sellers had to cover — the classic short squeeze.

It is likely that the people who engineered the short squeeze have already taken profits.

In our experience, 8 out of 10 times such short squeezes fizzle out. This is the reason for short selling.

Fortunately, our short recommendation did not occur at around $33, where most funds shorted. Also, we help subscribers maintain emotional stability because we have a plan, and the position is very small relative to the full position size.

The plan is to keep on short selling in 5-10% tranches if the stock goes higher.

Those not in the stock may pay attention to the RTF and start a position.

THE FOREGOING DOES NOT MEAN THAT THERE IS NO RISK. Sometimes stocks can levitate for a long time and we can be wrong. This is the reason to build the position slowly.

ANOTHER ORDER ON JCP

January 26, 2012

Entering a new DAY limit order for a 5% tranche at $42.23.

ADDING TO JCP

January 26, 2012

Consider adding a 5% tranche  right here at $40.83

NEW IDEA ON JCP

January 26, 2012

Short sold a 5% tranche right here at $38.73.

Note the risk is high the stock is undergoing a short squeeze right now.  The plan is to add more if the stock goes higher.

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