Dow component JPMorgan Chase & Co. (JPM) fires the opening shot of first quarter earnings season in Friday's pre-market, with the banking giant expected to report earnings per share of $2.29 on $27.7 billion in revenues. The bank beat expectations in the fourth quarter but missed on revenues, with Wall Street analysts once again overestimating the impact of U.S. economic strength on the banking sector.
That mixed theme may prevail this time around as well, even though last year's historic tax cuts were expected to supercharge 2018 economic growth. That didn't happen in the first quarter, with the Atlanta Fed now expecting mediocre 2.0% GDP growth. As a result, potential investors should lower their expectations and wait to see how the stock trades following results. If past is prologue, a buy-the-news reaction could fizzle out quickly. (See also: JPMorgan Chase & Co.: The Big Bank.)
JPM Long-Term Chart (1990 – 2018)
The stock fell to an all-time low in single digits in 1990 and turned higher, entering an uptrend that broke nine-year resistance in the upper teens in 1996. Buying pressure then accelerated, generating impressive gains into March 2000, when it topped out at $67.20. That peak marked the highest high for the next 15 years, ahead of a bear market decline that reached a seven-year low at $15.26 in October 2002.
An Elliott five-wave rally stalled just under the .786 Fibonacci sell-off retracement level in 2007, marking a cyclical top ahead of the 2008 economic collapse. The stock outperformed its peers during that troubling period, with the company maintaining a healthy balance sheet throughout a descent that undercut the 2002 low by 30 cents. That climax finally ended the nine-year downtrend, giving way to a mixed recovery wave that took more than four years to clear the mid-$40s.
A 2013 breakout generated a modest uptrend that finally reached the 2000 high in June 2015. The stock reversed at resistance, carving a volatile diagonal pattern that held support in the low $50s, ahead of a breakout following the 2016 presidential election. The uptick paused in the lower $90s in the first quarter of 2017 and cleared that level in September, igniting a powerful rally wave that posted an all-time high at $119.33 in February 2018.
JPM Short-Term Chart (2017 – 2018)
Price action in the past three years has carved strong support in the upper $60s and low $90s, lowering the odds for a repeat of 2008. However, it hasn't carved a major pullback since May 2017, raising the odds for a correction that drops the stock into the double digits. The March downturn completed a monthly stochastic crossover, signaling the first long-term sell cycle in nearly a year while telling market players to pay close attention to this week's confessional.
A Fibonacci grid stretched across the uptrend that started in May 2017 organizes short-term price action, with the February and April declines testing the .382 retracement level. The 50% retracement has aligned with the psychological $100 level, making that an obvious downside target if the stock breaks support now located between $105 and $107. Meanwhile, the .618 retracement is situated within two points of the September cup and handle breakout, offering a potential low-risk buying opportunity if the downside gathers momentum.
On-balance volume (OBV) fell to an all-time low in 2012 and entered an accumulation phase, reaching 2011 resistance (blue line) in March 2017. It posted a higher low a few months later and broke out above the contested level in February 2018. However, weak price action since that time has been testing new support, with an indicator breakdown setting off another round of long-term sell signals.
The Bottom Line
JPMorgan stock has been stuck in a trading range since January 2018, with an aborted February breakout reinforcing resistance near $120. Relative strength indicators have rolled into sell cycles, but the stock could recover quickly if U.S. economic numbers pick up in the second quarter. As a result, there isn't much to gain from long or short positions at this time. (For additional reading, check out: JPMorgan: Dimon Sees Ample Growth Opportunities.)
<Disclosure: The author held no positions in aforementioned securities at the time of publication.>