JPMorgan Stock in Rally Mode Despite Weak Quarter

Dow component JPMorgan Chase & Co. (JPM) is trading higher in Tuesday's pre-market despite missing first quarter 2020 profit and revenue estimates by wide margins. Revenue fell 3% year over year to $28.2 billion, well below estimates of $29.1 billion, with the shutdown triggered by the pandemic pressuring all sorts of business transactions. Credit losses rose to $8.3 billion, compared to $1.5 billion in the first quarter of 2019, as a result of reserve builds needed to address deteriorating credit conditions.

The stock posted an all-time high at $121.10 on the first trading day on 2020 and sold off with broad benchmarks in February, dropping 44% in just four weeks. Price action into April has carved a trading range below new resistance at the 50-day exponential moving average (EMA) near $105, while the broken 200-day EMA at $116 marks an additional barrier if bulls can engineer a breakout. Given both obstacles, it could be months or years before this former market leader tests January's bull market high.

This morning's buy-the-news reaction may offer a preview of other commercial banks reporting earnings in the coming week. The entire group took severe beatings during the sell-off, compounded by dovish Federal Reserve policy that will translate into lower profits in coming quarters. As a result, it's best to view rallies during this period as "oversold bounces" that will eventually fail at strong zones of resistance.

JPM Long-Term Chart (1990 – 2020)

JPMorgan stock posted an eight-year low at a split-adjusted $3.21 in 1990 and entered a strong uptrend, lifting to $67.20 in the first quarter of 2000. It sold off with big tech when the internet bubble burst, dropping in a complex decline that found support at a six-year low in the mid-teens in 2002. The first bounce off that level stalled in the mid-$40s in 2004, establishing resistance that was finally mounted in 2006.

The subsequent rally wave topped out in 2007 more than 13 points under the 2000 peak, despite windfall profits from credit default swaps (CDS). The tide turned in the fourth quarter of the year, triggering a sector-wide decline that dropped JPMorgan shares to a six-year low in March 2009. Even so, the deep slide exhibited resilience compared to other commercial banks, setting the stage for a rapid recovery that stalled within five points of the prior high in 2010.

Bullish price action finally completed a round trip into that resistance level in 2013, triggering an immediate breakout that reached 2000 resistance in the upper $60s in 2015. The stock broke out after the 2016 election, carving impressive gains into the first quarter of 2018. A secondary breakout in October 2019 posted an all-time high at the start of 2020, ahead of a topping pattern that broke to the downside in February.

JPM Short-Term Outlook

The decline into March held well above the 2016 breakout level, maintaining strong support near $70. Even so, the bounce faces major resistance around $117, where the failed 2019 breakout and 200-day EMA have narrowly aligned. The .618 Fibonacci sell-off retracement level at $115 is reinforcing this barrier, which marks the final upside target if optimism and oversold technical conditions continue to control the broad tape.

The monthly stochastic oscillator entered a sell cycle from the overbought zone in February 2020, predicting relative weakness into the third quarter. The indicator has now stretched into but not entered the oversold zone, which is similar to sell cycles since 2013. However, the prior lows have now formed a descending trendline that predicts additional downside stretching into that extreme zone for the first time since 2010.

The Bottom Line

JPMorgan stock has rallied more than 2% after the banking giant missed first quarter estimates, with investors attempting to look past the pandemic shutdown.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.