Looking for a [JCP] entry point? You might get a nice one real soon.

I feel like January is going to be hard on the markets but that there should be a rebound before really getting bad.  Actually, it is less than a feeling than a high level aggregation of the models I am tracking on important stocks.  One in particular that I am watching is JNJ.  If you want something to model the future of the stock market after, I think JNJ is as good an indicator as any.  But that is for another post.

Back in this post, I called a bottom on JCP penny which did in fact play out as expected.  The shares were $7.35 at the time of that post.  They then skyrocketed (at least as measured in percentage terms per unit time) to $10.31.  Just before they peaked, I called a near term top at $10.13 and provided a wave model suggesting a partial retracement of the recent gains.

Now that more data is in, here is my latest model update.  Unless the chart breaks out of the down-sloping resistance line connecting 2 and 4 below,  I think it will likely break down to perhaps center channel as modeled below.  Again, this model is immediately wrong if the share price can break out of the down-sloping channel and if it breaks out with a gap and volume then the ride will probably take it up to $14 very quickly with the power of a 3rd wave.

Having said that, the shares did pull back to the 61.8% fib after the test of the top resistance line.  And this is a very typical way to break out: the 1st wave up cannot do it and it requires a pull back into the 2nd wave so that the power of a 3rd wave can crash through resistance and break free.




Because of this I'm not assigning very high odds to the current model prediction of a massive pull back (far more than normal) for wave 2.  I give the model above 65% chance of playing out and 35% chance of instead breaking out as if wave 2 down was complete.

The reason my current thinking gives the nod to the strong pullback is manifold:

• I don't like the shape of the a-b-c.  It is clearly a 5-3-5 but C is not longer than A.  I think it would be a better chart if we got a C wave down to mid channel at around $6.30.
• JCP is a weak company.  It's not ready to die just now, but I think it will eventually BK and the shorts know it.  They will not easily let go of what they think to be an easy kill.
• I think the markets are going to struggle in January and that a big pull back is in place for all of the indices.  There is just too much complacency right now.

So if I think the odds are only 65%, why even bother?  Those odds are so close to a coin toss that it doesn't seem worth the trouble, right?

No, not right.  The value comes in if the shares actually do pull back as expected.  It will be something that few EWers will expect. Many of them just look at the fib retracement as a major requirement whereas I think the wave shape carries more weight.  So if this pulls back most will be afraid of it.  Not me in that case.  If I see 5 clear waves down (wave clarity tends to be easier to read in 3rd and C waves) then I will have good confidence that an inclining double bottom is neigh.   Under those circumstances and with the expectation of a 3rd wave to follow, a lot of money can be made in a short time while using tight stops (i.e. an asymmetrical bet).

Time will tell.