Technical Headwinds Could Delay JPMorgan Chase Breakout

Shares of Dow component JPMorgan Chase & Co. (JPM) surged higher last week following a six-week pullback that ended with a successful test at the 50-day exponential moving average (EMA) near $113. The stock is now testing the February high, which also marks the bull market and all-time high, even though commercial banking funds are trading well below similar levels. The sector isn't known for this type of maverick behavior, raising doubts about the stock's trajectory in the coming weeks.

Of course, shareholders want a continuation of the powerful uptrend that booked impressive 2017 returns. Price action in 2018 supports that outcome, carving a bullish cup and handle pattern, but accumulation/distribution readings remain stuck well below the first quarter peak. This bearish divergence often signals limited upside, with choppy swings around the breakout level until committed buyers come off the sidelines. (See also: JPMorgan Stock Breaks Out From Bearish Price Channel.)

JPM Long-Term Chart (1990 – 2018)

The stock posted exceptional gains during the 1990s, grinding higher in a healthy uptick that added more than 55 points into the March 1999 high near $60. A consolidation into the first quarter of 2000 yielded a breakout that reached $67.20, followed by a reversal that accelerated following the Sept. 11 attacks. The decline bottomed out at a seven-year low in October 2002, giving way to a bounce that recouped just half of the bear market losses into 2004.

The uptrend stair-stepped higher in late 2005, at the same time that the real estate bubble took control of the U.S. economy. The rally failed to reach the 2000 high despite the tailwind, stalling in the mid-$50s in May 2007. That marked the highest high for the next six years, ahead of a volatile downtrend that accelerated into a vertical plunge during the 2008 economic collapse. Support from 2002 held despite intense selling pressure, bottoming out just 30 cents lower in March 2009.

The subsequent recovery wave reached the 2007 high in 2013 and the 2000 high two years later, triggering a broad consolidation, followed by a powerful breakout after the 2016 presidential election. The uptrend posted a long series of higher highs and higher lows into February 2018, topping out at an all-time high near $120. The monthly stochastics oscillator crossed into a sell cycle at the same time, finally turning higher in July. (For more, see: The Top 5 JPMorgan Shareholders .)

JPM Short-Term Chart (2017 – 2018)

The 2018 correction found support just above $100, generating two tests ahead of a steady uptick that stalled two points under resistance in August. The stock ground sideways into mid-September and bounced strongly at the 50-day EMA, while price action since that time has completed the handle within a seven-month cup and handle pattern. The 17-point width (119.33 – 102.20 = 17.13) yields a measured move target in the upper $130s.

However, on-balance volume (OBV) has failed to confirm this bullish behavior, testing the March 2017 high in February 2018 and entering a distribution phase that hit a 10-month low in June. A buying spurt into August ended in the lower half of the indicator's five-month range, while recent interest has failed to mount the mid-summer peak. Generally speaking, this type of pattern signals inadequate institutional sponsorship, raising the odds that a breakout attempt will fail. (See also: JPMorgan's Hot Stock May Drop 7%.)

The Bottom Line

JPMorgan Chase stock rallied within nine cents of February's all-time high last week, completing the last stage of a cup and handle breakout pattern. However, weak volume support raises a red flag, predicting two-sided range-bound action rather than a healthy uptrend. (For additional reading, check out: JPMorgan Chase & Co.: The Big Bank.)

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