Does JPMorgan Chase Support a Move Higher?

With shares of JPMorgan Chase (NYSE:JPM) trading around $53, 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 will pay more than $900 million in fines to authorities in the U.S. and the U.K. and admit to wrongdoing to settle the London Whale trading scandal that resulted in $6 billion in losses. The agencies JPMorgan must pay are the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve, and London’s Financial Conduct Authority. No senior executives from JPMorgan are expected to face charges, The New York Times reports. The rare admission of wrongdoing could result in other lawsuits for JPMorgan, which formerly had a reputation of its risk management skills.

T = Technicals on the Stock Chart Are Mixed

JPMorgan Chase stock has been a strong performer in the last few years. The stock is currently trading slightly below highs for the year. 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 key averages, which signals neutral price action in the near-term.

JPM

Source: Thinkorswim

Taking a look at the implied volatility 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

24.59%

46%

45%

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

October Options

Flat

Average

November Options

Flat

Average

As of Friday, 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.

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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

32.23%

33.61%

54.89%

37.25%

Revenue Growth (Y-O-Y)

13.67%

-3.57%

10.16%

5.82%

Earnings Reaction

-0.30%

-0.60%

1.01%

-1.14%

JPMorgan Chase has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been disappointed about JPMorgan Chase’s recent earnings announcements.

P = Weak 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

21.15%

26.61%

32.33%

25.78%

23.19%

JPMorgan Chase has been a poor relative 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 reached a settlement with U.S. and U.K. regulators over the London Whale trading incident. The stock is currently trading near prices not seen since the early 2000s. Over the last four quarters, earnings and revenues have been on the rise. However, investors have been disappointed with the company’s earnings announcements. Relative to its peers and sector, JPMorgan Chase has been a weak year-to-date performer. Look for JPMorgan Chase to OUTPERFORM.

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