Will Recent News Hurt JPMorgan Chase’s Stock?

With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $56, is JPM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

JPMorgan Chase is a financial holding company that provides various financial services worldwide. The company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. Financial services companies like JPMorgan Chase are essential for well-functioning economies around the world.

JPMorgan Chase CEO Jamie Dimon, a feisty leader who steered the banking company through the perils of the Great Recession, is battling throat cancer. The condition is considered to be curable, according to a memo to JPMorgan Chase employees and shareholders that Dimon released late Tuesday. Dimon, 58, said he plans to remain on the job and be actively involved in key decisions while undergoing radiation and chemotherapy treatment. The eight-week treatment will begin soon at Memorial Sloan Kettering Hospital in New York. The cancer remains confined to Dimon’s throat and adjacent lymph nodes on the right side of his neck, according to the memo. “I feel very good now and will let all of you know if my health situation changes,” Dimon said.

Despite the words of reassurance, Dimon’s illness could raise leadership concerns at one of the world’s biggest banks. Those worries could be magnified by a recent succession of departures among high-ranking JPMorgan Chase executives once considered to be Dimon’s potential successor. The list of defections have included former co-chief operating officer Frank Bisignano and former investment banking head Michael Cavanagh, who had been known as Dimon’s “Mr. Fix-it.” Dimon, JPMorgan’s CEO for the past eight-and-half years, won praise for his savvy in the aftermath of the mortgage-market meltdown that nearly toppled the banking industry before miring the U.S. in its deepest recession since World War II. His reputation, though, was tarnished in 2012 by the revelation of a stunning $6 billion loss triggered by risky bets made on complex debt securities by a JPMorgan trader in London.

The setback, known as JPMorgan’s “London Whale,” contributed to an unsuccessful shareholder campaign last year to separate the jobs of chairman and CEO — duties that Dimon still holds. JPMorgan also reached a settlement with the U.S. Justice Department last year that required the bank to pay $13 billion to cover losses from the sale of toxic mortgages that later collapsed in value. Another legal settlement negotiated last year required JPMorgan to dole out $4.5 billion to investors in bundles of shoddy home loans. JPMorgan said most of those troublesome mortgages were inherited from investment bank Bear Stearns and savings and loan Washington Mutual, companies that Dimon negotiated to buy during the financial crisis of 2008.

T = Technicals on the Stock Chart Are Mixed

JPMorgan Chase stock has struggled to make significant progress. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, JPMorgan Chase is trading above its rising key averages which signal neutral to bullish price action in the near-term.

JPM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of JPMorgan Chase options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

JPMorgan Chase options

19.16%

50%

48%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on JPMorgan Chase’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for JPMorgan Chase look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-19.5%

-6.47%

-112.14%

32.23%

Revenue Growth (Y-O-Y)

-19.22%

-7.02%

-7.67%

13.67%

Earnings Reaction

-3.65%

0.06%

-0.01%

-0.3%

JPMorgan Chase has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about JPMorgan Chase’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has JPMorgan Chase stock done relative to its peers, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and sector?

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

-2.62%

2.41%

-7.79%

16.09%

-1.66%

JPMorgan Chase has been an average performer, year-to-date.

Conclusion

JPMorgan Chase is a bellwether in the banking space that forms an essential part of the United States financial system. The company CEO Jamie Dimon is battling throat cancer. The stock has struggled to make significant progress and is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has produced mixed feelings among investors. Relative to its peers and sector, JPMorgan Chase has been an average year-to-date performer. WAIT AND SEE what JPMorgan Chase does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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