Dow component JPMorgan Chase & Co. (JPM) fell more than 2% following Tuesday's pre-market earnings release after missing fourth quarter earnings and revenue expectations. The bearish reaction follows yesterday's pre-market Citigroup Inc. (C) decline, which marked a short-term buying opportunity. As a result, dip buyers might look at the downdraft as a chance to get on board ahead of stronger price action following the opening bell.
JPMorgan stock struggled in 2018, losing nearly 9%, which marks the banking giant's worst performance since 2011. More importantly, it broke a year-long double top pattern in December, entering a downtrend that could eventually test 2016 support in the $70s. Sadly, the pattern for JPMorgan stock looks more constructive than the majority of commercial banks, highlighting the sector's bearish reaction to rising interest rates and persistent trade tensions.
JPM Long-Term Chart (1995 – 2019)
A 1995 breakout gathered stream into the new millennium, topping out at $67.20 in March 2000. The subsequent downturn accelerated following the Sept. 11 attacks in 2001, breaking three-year range support in a steep decline that finally ended in the mid-teens in October 2002. A recovery wave retraced about 50% of the bear market losses before stalling in the low $40s in the first quarter of 2004.
The stock underperformed badly in the next 18 months, dropping to a two-year low ahead of a strong uptick driven by the real estate and derivatives bubbles. This buying impulse ended well below the 2000 high in May 2007, giving way to a modest pullback that escalated into the 2008 economic collapse. It posted a historic bottom just 30 cents under the 2002 low in March 2009, setting the stage for a strong bounce that stalled in the upper $40s at the start of the new decade.
That peak marked resistance for the next three years, ahead of a 2013 breakout that completed a round trip into the historic high in 2015. It carved a double top at that level and broke down in August, hitting a two-year low at $50.07 ahead of a slow-motion uptick and major breakout after the presidential election. The rally posted healthy gains into February 2018's all-time high at $119.33 and turned sharply lower, carving a double top pattern that broke to the downside in December.
The monthly stochastics oscillator entered a buy cycle in June 2018 and crossed to the downside in October before reaching the overbought level, revealing hidden weakness ahead of the late-year breakdown. The indicator still hasn't reached the oversold level, raising the odds that the stock will post new lows some time in the first quarter. The 50-month exponential moving average (EMA) in the mid-$80s could yield a significant bottom if that happens because all downturns since 2012 have held that support level.
JPM Short-Term Chart (2016 – 2019)
Fibonacci grids stretched across rally waves that started in 2016 and 2017 place double top support around the .382 rally retracement of the shorter-term uptick, while the December breakdown bounced near the .382 retracement of the longer-term uptick. The $103 to $105 level now marks major resistance, supported by a broad distribution wave that has dropped the on-balance volume (OBV) accumulation/distribution indicator to the lowest low since the 2016 election.
This bearish pattern predicts that short sellers are reloading positions above $100 ahead of a reversal that breaks the 2018 low. In turn, that would generate an immediate test at the 50% retracement of the long-term uptick, which has narrowly aligned with the 50-month EMA. The April 2017 low at $81 could also come into play at that time because a breakdown through the .786 retracement of the shorter rally leg would significantly raise the odds for a 100% retracement.
The Bottom Line
JPMorgan stock is selling off after the financial giant missed fourth quarter profit and revenue estimates, but it could trade back above the $100 level before aggressive sellers ignite a down leg that breaks the 2018 low.
Disclosure: The author held no positions in aforementioned securities at the time of publication.