JPMorgan Chase & Co (JPM) - Get Report tested and closed below my annual pivot at $93.20 on Christmas Eve. With a dividend yield of 3.66% the stock will be one of the eight "Dogs of the Dow" for 2019. This combination justifies buying a starter position now.
JPMorgan is the largest of the four ''too big to fail" money center banks and the only major bank in the Dow Jones Industrial Average. This banking giant ended the third quarter with $2.326 trillion in total assets, which represents 13.2% of the entire banking system. The stock ended Christmas Eve at $92.14, down 13.8% year to date and in bear market territory, 22.8% below its all-time intraday high of $119.33 set on Feb. 27. Because of this weakness the dividend yield has increased to 3.66%, the fifth cheapest Dow stock.
My definition of the "Dogs of the Dow" has a different twist from conventional wisdom. Mine consists of the eight stocks with a dividend yield of at least 3.00% and which also had a down year the prior year. Given these guidelines JPM qualifies to be a member of the "Dogs of the Dow' for 2019.
Back on Dec. 10, I answered the question, "Why Higher Interest Rates Are Not Helping Big Banks." In this story, I explained the unwinding of the Federal Reserve balance. When the Fed is draining $50 billion per month from the banking system, banks fall into a bear market. Remember you cannot have a bull market for stocks with a bear market for banks.
JPMorgan is one of the most important components of the Dow 30, as it's the first company in the average to report earnings for the quarter ended in December. The bank reports on January 15, when analysts expect JPMorgan to earn $2.22 per share. This bank has beaten earnings-per-share estimates for 12 consecutive quarters, which helped the stock climb to its all-time high on Feb. 27.
On Sunday, Dec. 23, Treasury Secretary Steven Mnuchin spoke to the CEOs of major banks including JPMorgan concerning liquidity issues within the banking system. Some say that these conversations spooked investors, further adding downward volatility for bank stocks. This is reflected in the steep declines for JPMorgan as shown in the charts below.
The daily chart for JPMorgan
Courtesy of MetaStock Xenith
The daily chart for JPMorgan shows the stock traded to its all-time high of $119.33 on Feb. 27, then dipped to its 200-day simple moving average at $105.24 on May 29. The stock regained momentum and set a secondary high of $119.24 on Sept. 20. This could have been considered a double-top. Between Oct. 10 and Dec. 4, the 200-day SMA shifted from support to resistance as a "death cross" formed on Nov. 12. A "death cross" occurs then the 50-day simple moving average falls below the 200-day SMA, indicating that lower prices lie ahead. This provided the opportunity to reduce holdings when the 200-day was tested at $111.47 on Dec. 1. The horizontal line at $109.39 is my semiannual pivot, which was a magnet between Oct. 11 and Dec. 4 when this key level failed to hold. This accelerated to the downside as my annual value level, now a pivot at $93.20 (lower chart horizontal), failed to hold, pushing the stock into bear market territory.
The weekly chart for JPMorgan
Courtesy of MetaStock Xenith
The weekly chart for JPMorgan is negative but oversold, with the stock below its five-week modified moving average of $101.85. The stock is likely to decline to its 200-week simple moving average, or "reversion to the mean," at $84.00. This "reversion to the mean" was last tested during the week of Feb. 12, 2016, when the average was $54.44. The 12x3x3 weekly slow stochastic reading is projected to fall to 14.60 this week, down from 20.68 below the oversold threshold of 20.00.
Given these charts and analysis, investors were justified in rebuilding a position in JPMorgan on weakness to my annual pivot of $93.20, and reduce holdings on strength to my semiannual risky level of $109.13. The second buy level is the 200-week simple moving average at $84.00.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.