Clownishness, much like beauty, stands in the eye of the beholder. So let's gather together to behold a clownish trade. Granted: playing Monday Morning quarterback to lame stock trades is a bit selective, even venal. But in the end, you learn from analyzing mistakes. Plus, what's more fun than making fun of missteps and pratfalls? With all that said, welcome to the first installment of The Clownish Trade of the Day.
The clownishness of J.C. Penney (JCP) is interesting, as it could eventually cut both ways.
At first, traders were guided by the principle that "Johnson was Magic." In other words, Ron Johnson, who helped build Apple's (AAPL) instantly iconic retail arm would do the same for the troubled low-end department store. Nevermind that Johnson had an (sorry for the groaner) assist from Apple's desirable products. He was a path breaker who could-and would-do it all. Of course, when it comes to trading, few conventions end worse than the cult-of-personality CEO. From Jamie Dimon at JPMorgan (JPM) to Carly Fiorina at Hewlett Packard (HPQ), it's claptrap.
Nevertheless, the stock marched up from Johnson's November appointment and even did the ultimate head scratcher: after the company announced in January that it would stop giving quarterly guidance (about as good a sign as an anvil teetering on a ledge), the stock showed even more topspin, flying even higher. Nearly all the analysts who covered J.C. Penney rated it a hold or buy. The skeptics were pretty much forever holding their peace.
Then along came yesterday and the news that J.C. Penney's first-quarter results had all the charm of a nail in the foot, and a rusty one at that. Worse, they were rescinding the dividend and -- you guessed it -- annual guidance. Reaction from those who were previously trumpeting Johnson's enviable brilliance turned immediately condemning. CNBC (GE) ran a representative story titled: "JCPenney: One of the Greatest Mistakes in Retail History?"
Uh, OK. But any sense that for all J.C. Penney's challenges -- and there are plenty -- Johnson has been there for only six months? November to May. Count it out, clown. Just because traders assume add-water-and-mix turnarounds when a notable CEO arrives on scene doesn't mean it happens. But those same clowns might not be giving Johnson his due now. That doesn't mean buy this messy stock. Far from it. But don't be judgmental or condemning, until the guy has had some time to work his magic.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.