As I have spoken about before, nothing has changed with this company since the offering. Nothing. How can I be so certain? Well you can never be 100% certain of anything, but here is what I believe to be true:
- J.C. Penney's (JCP) $9.65 offering bagged virtually all their investors and from the actions and comments of their big investors, they voted with their feet and sold. We won't know for sure until the 13fs are updated and some may be buying back 20-30% lower but my sense is that most if not all of the big ones are gone for the foreseeable future.
- Everyone who tried to bottom fish in and after the secondary has been scorched. My own prediction that the stock would bounce post offering has proved wrong so far though I still believe the stock will retrace to its offering price before the year is up.
- Operationally nothing can really happen until the holidays and even then, it is really about what happens next year when RJ is fully gone and his inventory and other demons are cleared out. I don't believe this holiday season is make or break. More likely to be non-event. However given where the stock is, uneventful news is likely to be take positively by the markets. Since nothing can really be known about the business, what better time to rumor it into oblivion.
- Into this void of no news and burned longs, shorts both naked and intercapital arbs have been pressing their case with no one to step in and buy. They have used a very sophisticated multi channel media (twitter, SA, Sum Zero, Sell Side, CNBC, carrier pigeon (:))) campaign to aid their cause and the Company keeps having to defend against baseless rumors. The bear raid has worked beautifully - longs crushed and the stock churns 30% of its float or more daily. No stability - all good for the shorts.
What set the stock into its latest tailspin was the sell side hit job that the rumors, while false, might become self fulfilling. So two up days in a row and the haters are out in force on Twitter. There is almost a desperation to their tweets and retreats of the same old news. As if repeating the same bear stories again and again makes them true. that desperation is why I believe we may finally be at a turn for the stock and the bonds. The bonds and bank debt seem to have based and seem better bid. JCP may have finally churned enough stock and found a level where the shorts need legitimate bad news (huge negative comps for example) rather than fake rumors about vendors selling claims (I have seen zero trade claims trade and I am looking for it daily) and hiring bankruptcy counsel. There is so much complacency on the short side, you need the stock to actually break out to lose their grip over it. Over the last three trading days, JCP has traded almost half its float. Those shares are now collectively in the money. The company is now reaching out to calm investors and get their story out. As more and more of the traded shares go into the money and the stock reverses, I believe you will see and explosion of short covering and the "free money" that the shorts have been printing starts to evaporate. The market is down today by a decent amount and JCP is up for a second day. A few more days like this one could start to break the short's grip on the stock. Watch the tweets. The higher the frequency of bear tweets the better for the longs.
While I am not a market technician, my technician friend seems to think that now the stock has broken $6.52 and now $6.70s that it can get back closer to $8. Who knows for sure but I believe from a fundamental viewpoint the stock should currently be in the $8-12 range and can get to $18-22 range with a modest turnaround.
Another thing to look for is that the bonds rally only modestly while the stock takes off. This dynamic will for the intercapital arbs to cover stock and reweight their risk models which could add to the violence of an upward move.
Additional disclosure: Positions can and do change without warning or notice.