JPMorgan Reports Earnings in Rebound Mode

JPMorgan Chase & Co. (JPM) has been one of the weak bank stocks, recently setting a 2018 low of $102.20 on July 6, but since then, the shares have popped by 5% in anticipation of positive earnings to be released before the opening bell on Friday, July 13. JPMorgan is the largest of the four "too big to fail" money center banks and is the only major bank in the Dow Jones Industrial Average. The stock closed Monday, July 9, at $107.28, up just 0.3% year to date and in correction territory at 10.1% below its all-time intraday high of $119.33 set on Feb. 27.

Analysts expect JPMorgan to post earnings per share of $2.23 to $2.32 when it reports results at around 6:50 a.m. on Friday. Wall Street expects a positive reaction to earnings, as the big banks are riding on successful stress tests that will allow them to increase dividends and share buybacks. In my opinion, JPMorgan is the most important stock given the cross-currents facing the global economy. The financial giant has banking activities around the globe that could cause unforeseen stress in the second half of 2018. (See also: 9 Bank Stocks That May Rise on Rich Payouts.)

The daily chart for JPMorgan

The daily chart for JPMorgan shows that the stock fell below its 200-day simple moving average on June 22, when the average was $106.81. This led to the 2018 low of $102.20 on July 6. Strength on Monday had the stock retesting its 200-day simple moving average at $107.47. Note how the 50-day simple moving average is declining toward the 200-day simple moving average, and a negative reaction to earnings could lead to a "death cross" in which the 50-day falls below the 200-day, indicating that lower prices lie ahead. The lowest of three horizontal lines shows risk to my annual value level of $93.20. The higher two lines are my semiannual and monthly risky levels of $109.39 and $116.45, respectively.

The weekly chart for JPMorgan

The weekly chart for JP Morgan ended last week negative, with the stock below its moving average of $107.38. The stock is well above its 200-week simple moving average at $78.00, which is the "reversion to the mean," last tested during the week of Feb. 12, 2016, when the average was $54.44. The 12 x 3 x 3 weekly slow stochastic reading fell to 22.82 last week, down from 28.95 on June 29. A weekly close above $107.38 would result in a chart upgrade to positive. 

Given these charts and analysis, traders should buy JPMorgan shares on weakness to my annual value level of $93.20 and reduce holdings on strength to my semiannual and monthly risky levels of $109.39 and $116.45, respectively. (For additional reading, check out: Why Bank Stocks May Be Ready to Rebound.)