Can JPMorgan Chase Climb Higher?

With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $60, 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.

The past year has seen an increase in settlement payments by JPMorgan Chase, with $4 billion agreed to or paid resolving claims of the bank’s possible knowledge of fraud and market manipulation by its former employees in just the “London Whale” and Bernie Madoff cases. The investment giant is now facing the possibility of a new class action suit, alleging a familiar theme, that could lead to a similar settlement agreement.

As reported in the South Florida Business Journal, Miami resident Ruth E. Moya filed a lawsuit against JPMorgan earlier this month in Florida’s Southern District, alleging the bank’s return to “robo-signing” procedures after she was hit with a judgment greater than her past due balance. Instead of the highly criticized technique being used to rush mortgage paperwork without checking for accuracy, as is alleged to have been at the heart of 2010’s foreclosure crisis, Moya accuses JPMorgan of employing the same methods to quickly produce paperwork needed to initiate lawsuits against credit card holders.

T = Technicals on the Stock Chart Are Strong

JPMorgan Chase stock has done relatively well in the past couple of years. The stock is currently trading near highs for the year and looks set to continue. 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 signals 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

21.81%

46%

44%

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

April Options

Flat

Average

May Options

Flat

Average

As of Tuesday, there is 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 Mixed 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-6.47%

-112.14%

32.23%

33.61%

Revenue Growth (Y-O-Y)

-7.02%

-7.67%

13.67%

-3.57%

Earnings Reaction

0.06%

-0.01%

-0.3%

-0.6%

JPMorgan Chase has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting 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), and Wells Fargo (NYSE:WFC) — and sector?

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

3.80%

10.98%

-3.76%

8.04%

5.76%

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 is now facing the possibility of a new class action suit. The stock has done relatively well in the past couple of years and is currently trading near highs for the year. Over the last four quarters, earnings have been mixed while revenues have been decreasing which has produced conflicting 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.

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