JPMorgan Chase (JPM) has been outperforming industry peers as the stock set its all-time intraday high of $94.51 on July 6. The biggest of the four "too big to fail" money center bank reported better-than-expected earnings before the opening bell on Friday, but the initial positive reaction stalled shy of the high. This put a cloud above the stock at the opening bell. Here's how to trade it!
The stock opened lower on Friday and traded as low as $90.58, just as CEO Jamie Dimon cussed-out Congress for its gridlock that has stalled initiatives to make the economy stronger again.
When you look at the nation's nine largest banks, we know that only Citibank (C) and J.P. Morgan set new highs as July began. The other 7 set their post-election highs as March began. This sets up a potential double-top for J.P. Morgan as its March 1 high was $93.98.
J.P. Morgan is a component of the Dow Jones Industrial Average and closed Friday at $92.25. The stock is up 6.9% year to date and is in bull market territory, up 33.2% above its post-election low of $69.24.
The Weekly Chart for J.P. Morgan
Courtesy of MetaStock Xenith
The weekly chart for J.P. Morgan has been positive since the week of June 9, and the stock remains above its five-week modified moving average (in red) at $89.24. The 200-week simple moving average or "reversion to the mean" (in green) is $65.51.
The "reversion to the mean" is an investment theory that the price of a stock will eventually return to a longer-term simple moving average, and the 200-week is simple to track. A ticker trading above its "reversion to the mean" will eventually decline back to it on weakness. Similarly, a ticker trading below its "reversion to the mean" will eventually rebound to it on strength.
For J.P. Morgan, the 200-week simple moving average was last tested during the week of Feb. 12, 2016, when the average was $54.44.
The bank's 12x3x3 weekly slow stochastic reading ended last week at 70.80, up from 61.88 on July 7. A weekly close below $89.24 results in a technical downgrade for the stock, which would confirm a double-top. Otherwise, the stock will become overbought, with a momentum reading above the overbought threshold of 80.00.
Trading strategy: Buy weakness to my semiannual, annual and quarterly value levels of $84.91, $84.24 and $81.55, respectively. Reduce holdings on strength to my weekly risky level of $92.50. My monthly risky level looks unreachable, at $104.42.