Where Will JPMorgan Chase Go Next?

With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $54, 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.

The former head of investment banking in China at JPMorgan Chase has been arrested by Hong Kong’s anticorruption agency, a Chinese news report and a person briefed on the matter said on Wednesday, possibly opening up a significant new front in what has become a global investigation into the Wall Street bank’s hiring practices in China. Fang Fang, 48, has been released but is restricted from leaving Hong Kong after being arrested recently by the city’s Independent Commission Against Corruption, or I.C.A.C., according to a report in Caixin, a respected Chinese-language financial news outlet based in Beijing. The contents of the report were confirmed by a person briefed on the matter. Mr. Fang, who left JPMorgan in March, has been a focus of a federal bribery investigation in the United States into whether the bank’s ‘‘Sons and Daughters’’ hiring program violated the Foreign Corrupt Practices Act, or F.C.P.A. Since last year, the United States authorities have been scrutinizing connections between the bank’s roles in specific deals and its employment of the children of senior Chinese officials and business leaders.

The person briefed on the matter confirmed on Wednesday that Mr. Fang had been arrested and said the contents of the Caixin report were accurate, but declined to be identified because the person was not authorized to speak publicly. It was unclear when Mr. Fang had been arrested or how long he had been detained before being released. When reached on his cellphone on Wednesday, Mr. Fang asked whether the call was to see ‘‘if I’m alive.’’ He added that he could not discuss his situation. The I.C.A.C. and JPMorgan both declined to comment.

T = Technicals on the Stock Chart Are Mixed

JPMorgan Chase stock has been pulling back in recent times. However, the stock is currently moving higher and looks set to continue. 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 below its rising key averages which signal neutral to bearish 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

19.15%

30%

28%

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

June Options

Steep

Average

July Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish 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

-3.65%

0.06%

-0.01%

-0.3%

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

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

-7.16%

-6.13%

-9.98%

9.35%

-2.48%

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 former head of investment banking in China at JPMorgan Chase has been arrested by Hong Kong’s anticorruption agency. The stock has been pulling back in recent times, but is currently moving higher. Over the last four quarters, earnings and 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.

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