Chart Of The Day: JPMorgan Fundamentals Looking Up But Technicals Point Lower

On Friday, Jan. 14 Q4, 2022 earnings season officially kicks off when JPMorgan Chase (NYSE:JPM), along with other global investment banks, release their quarterly corporate report cards.

Analysts expect JPM to show $3 EPS on $29.87 billion in revenue, a little lower than the $3.79 EPS and $30.16 billion brought in during the corresponding quarter last year.

Last week the Fed shocked markets when the FOMC minutes indicated a faster move to rate hikes than investors had anticipated. However, this was good news for the future revenue potential of US lenders.

As the US's largest bank by assets, JPMorgan Chase investors are likely expecting the financial institution to benefit, given that increased rates boost the bank's potential markup to its own interest rates on loans.

Do the stock's technicals reflect this optimistic fundamentals-based outlook?

JPM Weekly

While the stock is up close to 0.5% in pre-market trade, it has weakened since its October all-time high. Even with its record gains the chart activity demonstrated that the momentum since the March bottom has been evaporating.

Since February, the trading pattern has been that of a potential top in the form of an H&S reversal. If the price makes a new high, it will blow out the pattern. Otherwise, for reasons currently unknown, powerful forces are chipping away at the stock.

Of course, we can always blame pandemic uncertainty but we couldn't say with certainty that's what's actually going on. However, we do know a cautionary view on the stock is underscored by the longer-term picture.

JPM Weekly 2018-2022

In this four year view, the pattern that emerges is an oversized rising wedge. It's unclear whether this pattern—which usually takes months to develop but here is going on four years—has the same bearish tendencies.

Nevertheless, we note the negative divergences provided by the Relative Strength Index which measures momentum and the Moving Average Convergence Divergence, whose name implies its purpose.

Trading Strategies

Conservative traders should wait for the earnings release and the price to either make new highs or complete the top, then for the dust to settle, with at least a 3-day, 3% filter to avoid a trap, before committing funds.

Moderate traders would wait for the same thing as their conservative peers. Except they would wait for a 2-day, 2% filter to avoid being whipsawed.

Aggressive traders could enter a long position upon a new record high or a downside breakout below the H&S neckline, but with a 1-day, 1% filter.

Trade Sample – Aggressive Long Position

• Entry: $175
• Stop-Loss: $170
• Risk: $5
• Target: $195
• Reward: $20
• Risk-Reward Ratio: 1:4

Trade Sample – Aggressive Short Position

• Entry: $150
• Stop-Loss: $155
• Risk: $5
• Target: $130
• Reward: $20
• Risk-Reward Ratio: 1:4