However, the reasons that I bought Action Alerts PLUS holding JPMorgan have nothing to do with its low forward-looking valuation, the coming CCAR (Comprehensive Capital Analysis and Review) stress test results or the easing of banking regulations.
Here's why I was buying.
Technical support should have, and did at least for the day show up as the stock approached:
- A 38.2% Fibonacci re-tracement of the June through February move higher.
- The 200-day simple moving average.
- The central trend line provided by an Andrews' Pitchfork model beginning with that same February high.
- JPM has shown remarkable resiliency every time that Relative Strength has even come close to 30.
- Chaikin Money Flow has finally turned green after two months in the red.
Is it too late to get in on this trade? I don't think so. Obviously, entry as close to the 200-day simple moving average (SMA) as possible would be more desirable, but my price target for the shares that I tacked on Tuesday would be $111 with a two-week timeline. My larger position is longer term. My target for those is the $119 year-to-date highs.
I am already short June 15 $100 puts, which is obviously where I add more shares if need be. Those still paid $0.45 as of last night. My point of capitulation would be the $98 level as that would represent a break of the 50% Fib line. Should that happen, I would like to buy back the shares at $90 in a worst-case scenario. I am already short those puts with a January expiration, and those puts still pay $2.45.