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Surviving JCPenney in a Wal-Mart World

NEW YORK ( TheStreet) -- If you're a current J.C. Penney (JCP) Investor from before the earnings release, you may be ready to break a keyboard or want to find a corner to curl up in. Don't grab your blanket just yet; the worst is likely over, or close to it.

Based on my experience with gap downs following earnings reports similar to J.C. Penney's, the odds favor yesterday or today marking the short-term low. It's not quite time to wish for a price above the closing before earnings of $33.32, but J.C. Penney does have strong support near $26. Next week will likely find bargain hunters picking up shares cheap to flip over. If Friday appears to be closing below Thursday's low, I may join with the bargain hunters for a quick hit-and-run weekend carryover.
There remains an opportunity to get long J.C. Penney today with options.

I expect bargain hunters and short sellers covering to push the price up about 50% in relation to the gap down price. Looking at the chart, I expect short-term resistance near $30. Round numbers often attract like a price magnet and repel, causing a bounce. Look for the second break above $30 as the one that "sticks."

In the meantime, count on the price continuing to fade lower absent news of a serious shift in revenue and/or earnings expectations. After a miss such as this one, it normally takes two healthy quarters to recover and win back investor confidence. If the support at $26 breaks, you may want to look at some other recent stocks after disappointing earnings.

Want to see a classic miss earnings result a few weeks after the fact? Take a look at Pandora (P - Get Report). Pandora disappointed and went from $14 down to an intraday low under $8. Also, take close note of the next few days after earnings. This is a classic pattern I see often, and you can too. Simply use your software to look at charts from the past few quarters and review the ones that gapped down the next day. The high placed a couple of days after the gap down in Pandora is now resistance.
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