Is JPMorgan Chase Well-Positioned for the Future?

With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $57, 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.

Another year, another series of bonuses for Wall Street. According to people familiar with the matter, JPMorgan Chase plans to increase bonuses for investment bankers while Morgan Stanley (NYSE:MS) will increase the cash portions of its end-of-the-year pay outs, the Wall Street Journal reports. According to the WSJ, some bankers at JPMorgan may see increases of 6 percent to 10 percent year-over-year, although bond, currency, and commodities traders are likely to see about a 5 percent cut. “It very much depends on what seat you’re in,” Brennan Hawken, an analyst with UBS, told the Wall Street Journal. “The winds of favor have really shifted against the bond traders and commodities traders that for so long did really remarkably well.”

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 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

23.30%

56%

53%

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

January Options

Flat

Average

February 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-112.14%

32.23%

33.61%

54.89%

Revenue Growth (Y-O-Y)

-7.67%

13.67%

-3.57%

10.16%

Earnings Reaction

-0.01%

-0.30%

-0.60%

1.01%

JPMorgan Chase has seen increasing earnings and mixed 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

31.43%

34.15%

31.21%

33.09%

33.47%

JPMorgan Chase has been an average 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 plans to increase bonuses for investment bankers. The stock has done relatively well in recent months, but is now pulling back. Over the last four quarters, earnings have been increasing while revenues have been mixed, 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.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More From Wall St. Cheat Sheet:

More from The Cheat Sheet