JCP Breaks Channel Support

09/25/08 08:17:53 AM

by Arthur Hill

JC Penney hit resistance from a key moving average and then broke channel support to signal a continuation of its long-term downtrend.

Security: JCP
Position: Sell

Figure 1 shows JC Penney (JCP) with weekly candlesticks over the last two years. Three technical features are converging to mark resistance in the low 40s. They are the falling 40-week simple moving average, the May trendline, and the upper trendline of the falling channel. The stock formed an indecisive candlestick three weeks ago (spinning top) and then declined sharply the following week. With resistance holding and the long-term trend down, a move below the summer lows can be expected.

FIGURE 1: JCP, WEEKLY. Here, three technical features are converging to mark resistance in the low 40s.

Graphic provided by: TeleChart2007.

Figure 2 focuses on the recent breakdown. The red lines mark a linear regression channel. I drew the linear regression first (middle line). The outlines extend up from the reaction high and low and are parallel to the linear regression. This channel captures the rate of ascent. With a sharp decline the last three weeks, JCP broke channel support and this reverses the upswing.

FIGURE 2: JCP, DAILY. Note the recent breakdown.

Graphic provided by: TeleChart2007.

The bottom indicator window shows 15-period relative strength index (RSI). The indicator rose from early July to mid-August and then started to stall above 50. The RSI broke the rising July trendline first and then broke below 50 over the last few days. This breakdown turns momentum bearish, and a move toward oversold levels (30) is expected. The bearish evidence is clearly stacking up against JC Penney, and it would take a move above last week's high to undo the technical damage.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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CHANNEL LINES

JCP Breaks Channel Support

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