Banking stocks widely rallied on Wednesday as the Federal Reserve signaled they have plenty of capital. This opened the spigot for banks to announce dividend hikes and buyback boosts, i.e. returning money to shareholders. Shares of companies like JPMorgan Chase & Co. (NYSE:JPM) jumped as a result, and through the lens of chart analysis, made constructive moves that look to promise higher prices still in coming weeks or months.
JPMorgan Chase for its part announced a share buyback program of up to $19.4 billion over the next twelve months and raised its quarterly dividend from 50 cents to 56 cents. My alma mater, among other large-cap banking stocks, will thus likely now see continued institutional money flowing into its stock as asset allocators remain yield-starved in many ways.
It wasn’t just banking stocks that rallied on Wednesday but the whole financial sector lifted.
On the first chart, I pegged the Financial Select Sector SPDR Fund (NYSEARCA:XLF) versus the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Here we see that after some outperformance following the U.S. election results last November, the financials slipped back into a relative weakness phase.
This relative weakness phase, however, merely retested the previous breakout point on the chart, which is to say that it could be looked at as constructive consolidation. The rally in the XLF ETF over the past few weeks is bringing renewed life into the sector in relative terms as well, and Wednesday’s rally further solidified this.
JPM Stock Charts
Over the past few months, as U.S. interest rates on the longer end came back in (lower), so too did banking stocks. In other words, banking stocks for a considerable amount of time now have largely been a play on interest rates.
With Wednesday’s news, however, this correlation may have unhinged for the time being and in a positive manner for bank stocks, as the dividend hikes and stock buybacks are natural fuel for a rally. Additionally this week we heard marginally hawkish statements out of the ECB, and Janet Yellen reaffirmed her cautiously hawkish tone, which over the past two days also led to a rally in interest rates.
On the weekly chart, we see that JPM stock — after a significant rally from August 2016 into early March of this year — began to consolidate over the past couple of months. Through a technical lens however note that with this week’s breakout we can call this multimonth consolidation phase a bull flag pattern, which as the name indicates should point to higher prices down the road.
On the daily chart, we see that in early June, JPM stock found horizontal support and its red 200-day simple moving average around the $82 area and promptly began to bounce. The rally and breakout since then now looks to point the stock back toward its early March highs around the mid $90s as a first upside target, followed by the $100 – $105 area.
Any strong bearish reversal should be respected as a stop loss signal.
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