JPMorgan Chase & Co. (JPM) fires the opening shot of third quarter earnings season on Thursday morning, with the commercial banking giant expected to report earnings per share of $1.66 on revenue of $24.9 billion. CEO Jamie Dimon is likely to offer an optimistic fiscal year outlook, driven by expectations for corporate tax cuts and a December interest rate hike that would increase sector profitability.
Commercial banks are attracting steady interest following a September slide that shook out many 2016 breakout buyers. Trading at an all-time high and just a few points below the psychological $100 level, JPMorgan Chase now shares its long-term leadership role with a newly resurgent Citigroup Inc. (C). A solid quarterly report could lift JPMorgan Chase stock above that magic $100 number, setting off a long-term test that might not end until 2018. (For a refresher, check out: The Industry Handbook: The Banking Industry.)
JPM Long-Term Chart (1991 – 2017)
The stock hit an all-time low at $3.21 in 1990 and turned higher in an uptrend that stalled in the mid-teens in 1993. It cleared that resistance level two years later and took off in a powerful trend advance that topped out at $67.20 at the height of the internet bubble in the first quarter of 2000. The subsequent decline generated severe technical damage, knocking the price down to mid-1990s support in the teens.
A bounce into the $40s stalled in 2004, generating a broad sideways pattern ahead of a 2006 breakout that lifted the stock within 14 points of the 2000 high in July 2007. That marked the bull market top, ahead of a historic plunge that ended at a 13-year low in March 2009. Even so, the company fared better than its banking rivals, maintaining a strong balance sheet that underpinned a recovery into the upper $40s in the fourth quarter of 2009. (See also: JPMorgan Chase & Co.: The Big Bank.)
That resistance level stalled progress for the next three years, giving way to a 2013 breakout that reached the 2000 high in 2015. The stock then sold off, entering an intermediate correction that completed the last leg of a multi-decade breakout pattern that was set into motion after the November 2016 election. The stock has rallied nearly 30 points since that time and could add substantially to gains in the coming years.
JPM Short-Term Chart (2015 – 2017)
The 2015 correction carved the outline of an ascending triangle, while the late 2016 breakout stalled at $94 on March 1, 2017, easing into a cup and handle pattern that broke to the upside on Oct. 2. The stock is now trading just two points above new support, exposing a failed breakout if traders sell Thursday's news. However, it is more likely that sidelined players jump on board after the release because corporate tax cuts could super-charge an already strong U.S. economy. (For more, see: Trump Tax Plan 'As Good as It Gets' for US Banks.)
The bullish tone will remain intact as long as a decline holds the trendline of rising lows since June. That support is now situated near $90, in between the 50- and 200-day exponential moving averages (EMAs). The June and September pullbacks ended between those moving averages, generating fractal behavior that could come into play once again. That decline may also offer a low-risk buying opportunity.
On-balance volume (OBV) posted three rally peaks in two years and entered a 2015 distribution wave that ended in the second quarter of 2016. The indicator surged to a six-year high in March 2017 and turned lower, while the most recent uptick has failed to reach the prior high, generating a notable bearish divergence that signals inadequate institutional sponsorship. This deficit may need a correction before it can be worked out of the system. (To learn more, see: Uncover Market Sentiment With On-Balance Volume .)
The Bottom Line
JPMorgan Chase shares could hit the triple digits after a strong earnings report this week, but immediate upside appears limited because that level often generates months of sideway action. Meanwhile, a bearish reaction could test recent gains, with the stock needing to hold the $90 level to avoid a deeper slide into late 2016 breakout support. (For additional reading, check out: Why BofA May Outperform JPMorgan, Citigroup.)