JPMorgan Chase (JPM) - Get Report is the largest money center bank in America and it set its all-time intraday high of $120.40 on Sept. 13. The FOMC cut the federal funds rate to a range of 1.75% to 2.00% on Wednesday which puts pressure on net income margins, particularly given a flattening U.S. Treasury yield curve. My call is to reduce holdings with the stock just above semiannual, monthly and quarterly pivots at $118.51, $119.85 and $120.14, which have been magnets since the high was set on Sept. 13.
After the rate cut on Wednesday, the stock closed at $119.76, up 22.7% year to date and in bull market territory 31.4% above its Dec. 26 low of $91.11. The stock is reasonably priced fundamentally with a P/E ratio of 12.46 and a dividend yield of 2.69%, according to Macrotrends.
Back on May 9, I posted a buy recommendation for JPMorgan and a "golden cross" formed on May 16, which tracked the stock to its all-time intraday high. The stock tracked its 200-day simple moving average between May 24 at $107.91 and Aug. 27 at $107.31 as buy levels. The first half of 2019 semiannual pivot at $110.75 was a magnet as the first half of 2019 came to an end. One reason for this buy recommendation was its dividend yield of 3.20%, which made the stock a candidate to be a member of the "Dogs of the Dow." I say buy low, sell high and now is the time to book profits.
The FDIC Quarterly Banking Profile for the second quarter provided same warnings for the banking system that will come into play for the remainder of 2019. The rate cuts by the Federal Reserve and reversion of the U.S. Treasury yield curve provide new challenges. This includes competition to attract and retain loan customers and depositors. Banks must focus on underwriting standards and risk management. Moving forward, net interest margins could be squeezed on the lower rates and flatter yield curve. Stress on deposits showed up in the second quarter as insured deposits declined 1.3% to $7.6 trillion. Reserves for losses totaled $124.9 billion in the second quarter, which is 22.8% above the level shown at the end of 2007. This is a sign of continued caution in the banking system.
The Daily Chart for JP Morgan
Courtesy of Refinitiv XENITH
The daily chart for JP Morgan shows the "golden cross" that was confirmed on May 16 when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. This was slow to evolve positively but provided numerous buying opportunities at the 200-day SMA. The stock set its Dec. 26 low of $91.11 and that day was a "key reversal" as the close at $95.96 was above the Dec. 24 high of $94.22. This was a buy signal. The close of $97.62 on Dec. 31 was a major input to my proprietary analytics and the annual pivot is now a value level at $102.64. This important level was first tested Jan. 16 and was a magnet crossed several times until a breakout occurred on April 1. The semiannual pivot for the second half of 2019 is $118.51. The third quarter pivot is $120.14. The pivot for September is $119.85.
The Weekly Chart for JP Morgan
Courtesy of Refinitiv XENITH
The weekly chart for JPMorgan is positive with the stock above its five-week modified moving average of $114.10. The stock is well above its 200-week simple moving average or "reversion to the mean" at $92.41. The 12x3x3 weekly slow stochastic reading is projected to rise to 62.83 this week up from 50.59 on Sept. 13. This is a reason not to short the stock and to maintain a core long position.
Trading Strategy: Reduce holdings with the stock above its semiannual, monthly and quarterly pivots at $118.51, $119.85 and $120.14, respectively. Buy weakness to the 200-day simple moving average at $107.71 and to its annual value level at $102.64.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play.
The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.
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 its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.