Dow component JP Morgan Chase and Co. (JPM) reported higher than expected first-quarter EPS and revenues on Thursday morning, triggering a mildly positive reaction that lifted the stock nearly a buck after the U.S. opening bell. CEO Jamie Dimon’s upbeat but generic outlook failed to spur additional buying interest, lowering the odds of a quick trip back to the March 1 all-time high at $93.98.
Chase led the commercial banking group in a historic rally following the November election, breaking out above 16-year resistance and gaining more than 30% into the March peak. It broke support at the 50-day EMA mid-month and has continued to drift lower while investors and market timers worry that President Trump’s tax and regulatory initiatives will fail to spur growth.
JPM Long-Term Chart (1993–2017)
The stock plunged to a multi-year low at $3.21 in 1991 and turned higher, breaking out above the 1986 high at $18.76 in 1995. It gained ground at a rapid pace into the 1998 Asian Contagion and reversed suddenly, giving up three years of gains in a 50% three-month decline. A V-shaped bounce into the new millennium posted a major top at $67.20 in March 2000, with that level marking the highest high for the next 15-years.
It ticked lower throughout the Dot.com bear market, undercutting the 1998 low in a downtrend that came to rest in October 2002 in the mid-teens. The stock emerged slowly from the multiyear malaise, stalling at the .618 selloff retracement in 2004 and grinding sideways for two years, ahead of a mid-decade uptrend fueled by the real estate and derivatives bubble. That buying impulse stalled just above the .618 retracement, ahead of a downturn that accelerated into the 2002 low during the 2008 economic collapse.
Resilient action compared to banking rivals underpinned a 2009 recovery that stalled just five points under the 2007 high in 2010, yielding several years of sideways action while the company worked through a whirlwind of lawsuits and fines triggered by its too-big-too-fail business practices. It finally broke out in 2013 and completed the round trip into the 2000 high in the second half of 2015, triggered a fresh downturn, ahead of last year’s major breakout. Meanwhile, broad price action since 2009 may have completed a large-scale Elliott 5-wave pattern.
JPM Short-Term Chart (2015–2017)
The uptick since August 2015 may have completed an Elliott 5-wave pattern as well, suggesting the current decline will grind lower for many months, shaking out high complacency levels. Unfortunately for bulls, the stock could drop into the upper 60s and test support (blue lines) without violating the positive technical tone. The 200-day EMA near $80 suggests a more logical target if sellers prevail, with that level offering a potential buying opportunity.
On Balance Volume (OBV) took off in the fourth quarter of 2016 and hit an all-time high with price in early March, ahead of a profit-taking wave that’s still underway. This is natural after a high percentage rally, telling us that core investors remained committed to the stock. Meanwhile, the monthly Stochastics oscillator has rolled into a new sell cycle, predicting another four to eight months of relative weakness that’s unlikely to reward trend following positions.
Interested market players should focus on resistance at the 50-day EMA near $89 and support at the January low near $83 for clues about short-term price action, with the lower level likely to hold firm on a first test. Also watch out for a lower high following the next bounce because it could precede a larger scale topping pattern, ahead of a mid-year test at November breakout support.
The Bottom Line
A positive earnings report and outlook from JP Morgan Chase has attracted mild buying pressure that’s unlikely to end the correction that started in the mid-90s more than six weeks ago. This suggests the banking sector is now more attuned to events in Washington DC than individual company metrics. Even so, this market leader should outperform its rivals in a downturn while offering long-term investors lower prices to get on board.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>