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J.C. Penney's Bandwagon Will Crash

NEW YORK ( TheStreet) -- Weak same-store sales, caused by (among other things) the bad weather, has soured the mood of retail stocks. But J.C. Penney  (JCP - Get Report) continues its march upward. With shares up 3.8% in mid-day trading Tuesday, J.C. Penney's stock has surged 67% since Feb 5. This has occurred in a mere 22 trading sessions. That's legendary status.

J.C. Penney bandwagon hoppers are now hitching a ride to the holy grail of prosperity. 

Without a doubt, there's a feel-good story here. Plano, Texas-based J.C. Penney has been the retail sector's punching bag after the Ron Johnson experiment failed. But this has all of the makings of irrational exuberance.

One catalyst for Tuesday's surge came courtesy of positive remarks from a Citi report led by analyst Oliver Chen. While upgrading the stock to a "buy," Citigroup says there's potential for the stock to add an additional 30% upside.

Citigroup is late to the party. Meanwhile, investors who have always perceived this stock as cheap are soaking up the upgrade. Where was this "conviction" when the stock traded at $4.90 several weeks ago?

Unquestionably, the embattled J.C. Penney has taken some meaningful strides to stabilize its business. There are noticeable improvements both financially and operationally. I just don't believe retail investors are looking at J.C. Penney with the right lens.

First, to describe the company's fourth-quarter earnings report (released Feb. 26), let's stop using the term "better-than-expected." With revenue declining 2.6% year over year, and missing Street estimates, the more appropriate description was "less bad."

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