Dow component JPMorgan Chase & Co. (JPM) kicks off second quarter earnings season on Tuesday, with analysts expecting earnings per share (EPS) of $1.32 on second quarter 2020 revenue of $30.23 billion. The stock fell more than 16% in the month following April's first quarter 2020 report, with investors walking away after the financial giant missed top- and bottom-line estimates. JPMorgan stock has booked little upside in the past two months and is still trading below April's recovery high.
The commercial banking sector underperformed in the second quarter, held down by plummeting interest rates and slumping business activity. While transactions ticked higher in the first two months of the quarter, the surge in COVID-19 cases in more than half of the American states has put a lid on growth, renewing fears of a long and deep recession. This highly cyclical sector is unlikely to swim against the tide if that happens and could enter a prolonged bear market.
On a positive note, most banks are maintaining dividends after meeting stress test requirements, giving long-term shareholders a legitimate reason to stick around, despite the headwinds. On the flip side, the sector has been a favored target for Democratic criticism since 2008, and the election of Joe Biden as president could presage a much stricter interpretation of reform rules put into place by Congress following that debacle.
Wall Street consensus currently rates JPMorgan stock as a "Moderate Buy," with 10 "Buy" and 6 "Hold" recommendations underlying that opinion. No analysts are recommending that shareholders sell their positions at this time. Price targets range from a low of $97 to a Street high $122, while the stock is now trading just $1 above the low target. In turn, this positioning strongly favors a buy-the-news reaction after Tuesday's confessional.
JPMorgan Long-Term Chart (1991 – 2020)
The stock posted a multi-year low at a split-adjusted $3.21 in 1991 and turned sharply higher, breaking out to a new high in 1995. The uptick paused in 1998 during the Asian Contagion and resumed one year later, topping out at $67.20 in March 2000. That marked the highest high for the next 15 years, ahead of a complex decline that bottomed out at a seven-year low in 2002. Buyers returned in 2003, but their efforts failed, with the upside stalling close to the selloff midpoint in 2004.
A 2006 breakout topped out just above the .618 Fibonacci selloff retracement level in 2007, ahead of a steep decline that accelerated during the 2008 economic collapse. Selling pressure ended at a 13-year low, just 26 cents below the 2002 low, giving way to a bounce that stalled about seven points under the 2007 peak in the third quarter of 2009. It took nearly four years to mount that barrier, finally yielding a 100% retracement into the 2000 high in 2015.
JPMorgan Short-Term Outlook
The stock broke long-term resistance after the 2016 election, posting impressive gains into March 2018, when it topped out once again at $120. Price action into the fourth quarter of 2019 carved a picture-perfect inverse head and shoulders pattern, yielding a breakout that posted an all-time high at $141.10 in January 2020. The subsequent downdraft failed the breakout before coming to rest at a three-year low in the $70s, while the recovery wave into the second quarter has failed to remount the broken 50-month exponential moving average (EMA) near the psychological $100 level.
A rally above that barrier after earnings would mark modest technical improvement, but the stock needs to trade above the April high at $128 to generate more reliable buying signals. Those looking at shorter-term charts should watch the 200-day EMA at $107 after the release to gauge buying interest, if any. On the downside, a decline into the $80s would break the trendline of higher lows since March, raising the odds for another test at the first quarter low.
The Bottom Line
JPMorgan stock could trade higher after Tuesday earnings, but it needs to jump through a series of technical hoops to restore a bullish long-term outlook.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.