J.C. Penney (JCP), the fourth largest US department store chain, is undergoing a transformation and brought in Ron Johnson, the ex-chief of stores at Apple (AAPL), to revive its business.
J.C. Penney 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. Penney 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. Penney will in the future be known as jcpenney. 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. Penney will introduce a simplified promotion and pricing structure.
J.C. Penney also plans to cut a large number of jobs and save $900 million over the next two years.
‘˜Buy the rumor, sell the news’ is a dictum often followed on Wall Street. When the stock did not go up after Johnson made the rounds, short sellers aggressively sold the stock short 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..Read more at Forbes
