What happened

Sears Holdings Corp (SHLDQ) shares were heading south today as the recent rally propping up the stock sputtered to a halt amid downbeat reports about the company and the broader department store industry.

As of 12:23 p.m EDT, the stock was down 8.4%. 

The sign at Sears Holdings corporate headquarters

Image source: Sears Holdings.

So what

Sears shares have become incredibly volatile recently as the stock rose nearly 50% over the course of eight sessions at the end of June on apparent short squeeze. However, those gains seem to be unwinding now as there was little fundamental reason for the rally. 

Research firm CreditSights gave Sears a 20% chance of defaulting in the next year, and noted that the company is being propped up by a mix of asset sales and loans from CEO Eddie Lampert's hedge fun. Sears' debt is also trading at a significant discount.

A rash of retail bankruptcies has also discouraged investors in the sector as clothing company True Religion became the latest victim, filing for Chapter 11 earlier this week.

Now what

Sears stock is likely to keep on twisting and turning as speculators and backers such as board member Bruce Berkowitz and Lampert come in and pump it up occasionally, but bankruptcy seems inevitable for the company. It's already spun off or sold most of its valuable assets such as Lands End and Craftsman tools, and the stores themselves are bleeding cash. Ultimately, the stock is going to zero. It's just a question of when.