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.

JPMorgan Chase increased its target for annual net income to $27 billion and will cut 5,500 more mortgage and retail banking jobs than forecast as higher interest rates boost profits and curb demand for home loans. The lender can increase earnings from last year’s $18 billion as legal costs subside and higher rates increase interest income from loans and investments, the New York-based company said today in a slide presentation for its annual investor day. The bank said it would eliminate about 8,000 jobs in the consumer and mortgage-banking units this year — 5,500 more than it forecast a year ago — as demand for refinancings declines. The firm said it will hire in other areas.

While the profit target was higher than the $24 billion goal it set a year earlier, the biggest U.S. bank’s forecast for return on equity was little changed as it holds higher levels of capital in all of its divisions. JPMorgan said it expects $3.5 billion of net income by 2017 from expansions in businesses including middle-market lending and private banking. “We now have clarity on most of the regulatory rules, and we believe that we, more than others, will successfully adapt to the new financial architecture and will emerge where we started — with best in class margins and returns,” Chief Financial Officer Marianne Lake said at the investor conference.

T = Technicals on the Stock Chart Are Strong

JPMorgan Chase stock has done relatively well in the past couple of years. However, the stock is currently trading sideways 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

21.39%

46%

43%

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

March Options

Flat

Average

April 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 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%

-0.30%

-0.60%

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), Wells Fargo (NYSE:WFC), and sector?

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

-1.56%

5.81%

-6.33%

1.41%

-1.16%

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 increased its target for annual net income to $27 billion and will cut 5,500 more mortgage and retail banking jobs. The stock has done relatively well in the past couple of years, but is currently trading sideways. 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.

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.

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