JPMorgan Chase & Co. (JPM) is the largest of the four “too big to fail” money center banks and is the only major bank in the Dow Jones Industrial Average. The financial giant reported earnings before the opening bell on Jan. 14 and beat analysts’ estimates. The stock set its all-time intraday high as 2020 began, trading as high as $141.10 on Jan. 2. Banks were expected to be top performers in 2020, but I disagreed with this notion.
JPMorgan stock closed last week at $133.15, down 4.5% year to date but in bull market territory at 46.1% above its Dec. 26, 2018 low of $91.11. The stock set its all-time intraday high of $141.10 on Jan. 2 and is currently trading 5.6% below that level.
According to the FDIC Quarterly Banking Profile for the third quarter of 2019, JPMorgan had $2.37 trillion in assets. The bank has lending tentacles around the world, which exposes it to negative effects related to the spread of the coronavirus. The stock has a P/E ratio of 13.02 with a dividend yield of 2.64%, according to Macrotrends. JPMorgan has beaten earnings per share (EPS) estimates in four consecutive quarters.
The daily chart for JPMorgan Chase
The daily chart for JPMorgan shows that the stock ended 2018 with a “key reversal” day on Dec. 26. This buy signal occurred after the stock traded as low as $91.11 that day but then closed the day at $95.96, above the Dec. 14 high of $94.22.
The stock posted another buy signal on May 16, when a “golden cross” was confirmed. This signal occurred when the 50-day simple moving average rose above the 200-day simple moving average. When a stock is trading above a “golden cross,” the strategy is to buy weakness to the 200-day simple moving average. In the case of JPMorgan, this was doable at $107.95 on May 23 and again on Aug. 7, when the average was $107.28. The stock followed these buy signals to its all-time intraday high of $141.10 set on Jan. 2.
The close of $139.40 on Dec. 31, 2019, was an important input to my proprietary analytics. This resulted in semiannual and annual risky levels above the chart at $142.68 and $144.69, respectively. The monthly and quarterly value levels are $127.87 and $122.87, respectively.
The weekly chart for JPMorgan Chase
The weekly chart for JPMorgan will soon be negative, with the stock below its five-week modified moving average of $134.75. The stock is well above its 200-week simple moving average, or “reversion to the mean,” at $98.62, last tested at $54.44 during the week of Feb. 12, 2016.
The 12 x 3 x 3 weekly slow stochastic reading ended last week at 81.18, down from 88.64 during the week of Jan. 17. This reading was above the 90.00 threshold during the week of Jan. 10, putting the stock in an “inflating parabolic bubble” formation.
Trading strategy: Buy JPMorgan stock on weakness to its quarterly value level at $122.87 and reduce holdings on strength to its semiannual and annual risky levels at $142.68 and $144.69, respectively.
How to use my value levels and risky levels: The closing prices of stocks on Dec. 31, 2019, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual, and annual levels. Each calculation uses the last nine closes in these time horizons. New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an “inflating parabolic bubble” formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered “too cheap to ignore,” which typically is followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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