Trade Review: How Patience Paid Off on JCP

09/12/2012 9:00 am EST

Focus: STOCKS

Jeff White

Founder, TheStockBandit.com

Trade Review: How Patience Paid Off on JCP

Jeff White explains how being careful helped him pull a few extra percent out of this quick-hit trade.

Thursday allowed me to close out an excellent 11-day trade in JCPenney (JCP) that paid 12.9%.

As simple as that sounds, there were several steps involved, including patience. So I wanted to walk you through the process of this trade from beginning to end in hopes of helping you with your next position.

Perking Up
With JCP having endured a significant downtrend from February to July, the stock sat more than 55% off its highs. That alone is never reason to enter a buy, but it can indicate the shorts are overconfident and the stock has become beaten-down enough to produce a bounce.

So, after seeing a short-term higher low established in early August, it was placed on my watch list. Not for a trade, but simply to monitor in case this developed into a change of character. Here’s how JCP first looked when I noticed it and put it on watch:

chart
Click to Enlarge

Pressuring Resistance
Having then rallied past resistance, JCP then entered into a narrowing base just beneath a short-term level. Dips were getting bought a bit more aggressively, creating some higher lows over the previous few sessions.

I set up a buy for $24.80, which triggered on August 23. Here’s a look at the chart I shared with subscribers when I listed the trade:

chart
Click to Enlarge

Next: Producing Gains

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Producing Gains
The initial trigger wasn’t met with great enthusiasm, but neither did the stock fail its breakout attempt in grand fashion. It was quiet, so I stayed with it without panicking. Just a few sessions later, Target 1 had been reached for a pretty quick 8%.

The stock pushed just 8 cents past that level before seeing some mild profit-taking, which ultimately allowed me to tighten my stop for remaining shares. Here’s a closer look at the chart as of Target 1:

chart
Click to Enlarge

Pausing Before Payoff
The profit-taking was mild and took place on quiet volume, which meant virtually zero pain but also required a little patience. This stage of trades always brings on the questions: “Is it done?”… “Should I just book this and move on before it pulls back deeper?”

But I stayed with my tightened stop and waited for the stock to either roll back over and stop me out or push higher and prove itself. That resulted in the final push, worth 12.9%.

Here’s a look at the rest phase before the pop to Target 2:

chart
Click to Enlarge

This was an excellent swing trade that paid off quite nicely. It took some good initial analysis to detect the play; it took proper management of the position once it was on; and it took a little patience to stick with it through the mid-trade lull before the final payday.

Jeff White is the founder of TheStockBandit.com. These are the kinds of trades he makes a big portion of his money from. Every one of them is shared with subscribers of his stock pick service, along with the entire trade plan from the outset and ongoing evaluation once the position has been put on.

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