JPMorgan Chase & Co. (JPM) has a winning streak of just four consecutive quarters of beating earnings per share estimates. The stock is down 39.7% year to date and in bear market territory at 40.4% below its all-time intraday high of $141.10 set on Jan. 2. The stock is up 9.3% from its March 19 low of $76.91.

JPMorgan stock is cheap, with a P/E ratio of 8.34 and a dividend yield of 4.11%, according to Macrotrends. The bank is the largest of the four money center banks that are considered "too big to fail."

Status of banking system based on fourth quarter 2019 FDIC data

Banks are reaching for yield, investing short-term money into longer-term assets. This puts a squeeze on profitability as the spread versus U.S. Treasuries widens. Banks invested in junk bonds have seen spreads widen by at least 500 basis points.

The banking system is shrinking. At the end of the fourth quarter of 2019, there were 5,177 financial institutions insured by the Federal Deposit Insurance Corporation (FDIC), down from 5,258 in the third quarter and down 39.3% from the end of 2007, when there were 8,533 banks. More than 500 banks were shuttered in the FDIC bank failure process.

The daily chart for JPMorgan

Daily chart showing the share price performance of JPMorgan Chase & Co. (JPM)
Refinitiv XENITH

The daily chart for JPMorgan shows the formation of a "golden cross" on May 16, 2019, when the 50-day simple moving average moved above the 200-day simple moving average, indicating that higher prices would follow. This buy signal gave investors the opportunity to buy the stock on weakness to the 200-day simple moving average at $107.94 on May 23.

The chart shows numerous other buying opportunities at its 200-day simple moving average all the way to $107.28 on Aug. 28. This began a momentum run that continued until the stock set its all-time high of $141.10 on Jan. 2, 2020. Strength into 2020 stalled shy of semiannual and annual risky levels at $142.68 and $144.69, respectively.

The stock has been below its 50-day simple moving average since Feb. 21. The 200-day simple moving average failed to hold on March 3, ending the "golden cross" buy signal. The stock then cascaded down to its March 19 low of $76.91. Today, the upside potential should be limited to its second quarter risky level at $104.44 and to its monthly risky level for April at $117.81.

The weekly chart for JPMorgan

Weekly chart showing the share price performance of JPMorgan Chase & Co. (JPM)
Refinitiv XENITH

The weekly chart for JPMorgan is negative, with the stock below its five-week modified moving average at $104.69. The stock has been below its 200-week simple moving average, or "reversion to the mean," at $101.15 since the week of March 20. 

The 12 x 3 x 3 weekly slow stochastic reading slipped to 23.25 last week, falling toward the oversold threshold of 20.00. At its January high, this reading was above 90.00, which had the stock in an "inflating parabolic bubble" formation. This led to the bear market decline. 

Trading strategy: Sell JPMorgan shares on strength to the quarterly and monthly risky levels at $104.44 and $117.81, respectively.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

Second quarter 2020 and monthly levels for April were established based upon the closing price on March 31. New weekly levels are calculated after the end of each week, and new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels are in play all year long.

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.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.