Where Will JPMorgan Chase Go Post-Earnings?

With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $55, 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 reported net income for the first quarter of 2014 of $5.3 billion, compared with net income of $6.5 billion in the first quarter of 2013. Earnings per share were $1.28, compared with $1.59 in the first quarter of 2013. Revenue for the quarter was $23.9 billion, down 8 percent compared with the prior year. The firm’s return on tangible common equity for the first quarter of 2014 was 13 percent, compared with 17 percent in the prior year.

T = Technicals on the Stock Chart Are Mixed

JPMorgan Chase stock has done relatively well in the past couple of years. However, the stock is currently pulling back and may need time to consolidate. 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 between its rising key averages, which signals neutral 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

23.29%

76%

74%

What does this mean? This means that investors or traders are buying a very significant 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

Average

Average

June Options

Average

Average

As of Friday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral 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

-3.24%*

0.06%

-0.01%

-0.3%

*As of this writing.

JPMorgan Chase has seen decreasing earnings and 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

-4.82%

2.47%

-11.70%

6.76%

-2.82%

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 reported first-quarter earnings that left investors conflicted. The stock has done relatively well in the past couple of years but is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing. 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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