Is JPMorgan Chase Ready To Explode?

With shares of JPMorgan Chase (NYSE:JPM) trading around $48, 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, such as JPMorgan Chase, are essential for well-functioning economies around the world. As companies continue to operate and economies expand, leaders like JPMorgan Chase will provide valuable products and services that help financial transactions and services run as smoothly as possible. As one of the better big banks, JPMorgan Chase will lead the financial sector for years to come.

T = Technicals on the Stock Chart are Strong

JPMorgan Chase stock is one of the few big banks that are trading near pre-Financial Crisis price levels. The stock is at a critical juncture at these prices, a solid break above may see the stock continue on a strong bullish run. 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 most of 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.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

JPMorgan Chase Options

21.61%

6%

5%

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

Put IV Skew

Call IV Skew

May Options

Flat

Average

June 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 minimal 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 Increasing 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

33.61%

54.89%

37.25%

-4.72%

Revenue Growth (Y-O-Y)

-3.57%

10.16%

5.82%

-17.17%

Earnings Reaction

-0.60%

1.01%

-1.14%

5.96%

JPMorgan Chase has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, 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), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), and sector?

JPMorgan Chase

Bank of America

Wells Fargo

Citigroup

Sector

Year-to-Date Return

9.58%

4.48%

10.33%

15.99%

10.58%

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

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Conclusion

JPMorgan Chase provides essential financial products and services to consumers and companies in developed and developing countries around the world. The stock has had a decent run over the last couple of years and is now trading at critical price levels. A solid break above these critical price levels may be very positive for its future stock price. Earnings and revenue figures have been increasing over most of the last four quarters but investors have expected a little more from the company. Relative to its peers and sector, JPMorgan Chase has been an average year-to-date performer. Look for JPMorgan Chase to OUTPERFORM

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