Will a Tentative Agreement Offer JPMorgan Chase a Boost?

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.

JPMorgan Chase has reached a tentative agreement with the U.S. Department of Justice to settle the many investigations against the bank, The New York Times reports. The agreement involves JPMorgan paying a $13 billion fine and contains no promise that the DoJ won’t pursue a criminal investigation. The JPMorgan settlement would be a record one for the government agency, as no single company has ever paid such a steep settlement, but the Times cautioned that talks could still fall apart.

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 trading sideways as it digests the flurry of recent news it has received. 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 slightly above its rising key averages, which signals neutral to bullish 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

22.7%

6%

5%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of Monday, 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 very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

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%

-0.3%

-0.6%

1.01%

JPMorgan Chase has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have not been pleased with 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

23.31%

25.11%

29.08%

25.04%

25.53%

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 is reportedly reaching a tentative agreement with the Justice Department to settle its many investigations. The stock has done relatively well in recent months but is now trading sideways as it digests recent news. Over the last four quarters, earnings have been increasing while revenues have been mixed, which has not pleased investors in the company. 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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