JPMorgan Chase & Co. (JPM) is the largest of the four "too big to fail" money center banks and is the only major bank in the Dow Jones Industrial Average. The bank reported second quarter earnings before the opening bell today, handily beating analysts estimates.
- EPS: $2.82/share, 16% increase y/y
- Revenue: $29.57 billion, 4% increase y/y
JPMorgan shares closed the first half of 2019 at $111.80 on June 28, which became a key input to my proprietary analytics. The only level left over from the first half is its annual pivot, which is now a value level at $102.64. The daily chart shows a "golden cross," and the weekly chart has been positive since the week of July 5, when the stock closed at $113.49.
Fundamentally, JPMorgan is reasonably priced with a P/E ratio of 12.45 and a dividend yield of 2.78%, according to Macrotrends. IndexArb shows a dividend yield of 3.12%, which qualifies the bank to be a member of the "Dogs of the Dow."
Analysts expect the bank to post earnings per share (EPS) of $2.50 to $2.55 when it reports results before the opening bell on Tuesday, July 16. In early May, CEO Jamie Dimon indicated that JPMorgan is not forecasting a recession but is planning for one.
It seems like the banking system is sound, but the big banks have exposures to the trade war with China, corporate debt refinancing, the Federal Reserve's "quantitative tightening" by unwinding its balance sheet, and uncertainties related to Brexit. Keep in mind that JPMorgan missed EPS estimates when it reported fourth quarter 2018 results on Jan. 15. The Wall Street Journal shows that, among 28 analysts, 14 have buy ratings, 13 have hold ratings, and one has a sell rating.
In the long term, JPMorgan is consolidating a bear market decline of 23.6% from its all-time intraday high of $119.33 set during the week of March 2, 2018, to its Dec. 26 low of $91.11. The stock is up 18.1% year to date and in bull market territory at 26.6% above the Dec. 26 low. The stock set its 2019 high of $117.15 on April 29.
The daily chart for JPMorgan
The daily chart for JPMorgan shows that the stock has been above a "golden cross" since May 16, when the 50-day simple moving average (SMA) moved above the 200-day SMA to indicate that higher prices lie ahead. Investors could have bought the stock at its 200-day SMA when it was $107.95 on May 23.
When the stock set its Dec. 26 low of $91.11, that day became a "key reversal" when the close at $95.96 was above the Dec. 24 high of $94.22. The close of $97.62 on Dec. 31 was the first major input to my proprietary analytics. Still in play is the annual pivot, now a value level at $102.64. The close of $111.80 on June 28 was another important input to my analytics. The horizontal lines are the value level for July at $105.09 and the second half risky level at $118.51. Above the chart is the third quarter risky level is $120.14. The 50-day and 200-day SMAs are now at $110.88 and $107.12, respectively.
The weekly chart for JPMorgan
The weekly chart for JPMorgan is positive, with the stock above its five-week modified moving average of $111.57. The stock is well above its 200-week SMA, or "reversion to the mean," at $89.96. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 62.84 last week, up from 58.64 on July 5.
Trading strategy: Buy JPMorgan shares on weakness to the monthly and annual value levels at $105.09 and $102.64, respectively, and reduce holdings on strength to the semiannual and quarterly risky levels at $118.51 and $120,14, respectively.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.