The financial sector of the S&P 500, along with the broader stock market, had a sizable rally in recent months. One of the largest and most notable stocks in the space is JPMorgan Chase (NYSE:JPM), which in recent months rallied to the very upper end of its longer-term trend. After an initially bullish reaction to earnings this week, JPM stock has reversed lower and now sets up for a quick short-side trading opportunity.
The financial sector and many banking stocks started to get a better bid in October 2019 as interest rates stopped going lower. Recently, however, interest rates are once again showing signs of dropping. This, combined with a generally overbought stock market, could be a tailwind for JPM stock on the downside.
As a side note, JPMorgan is my alma mater and in my eye a great company, which is to say that my trading idea here is nothing more than that: a trading idea. Not a longer-term bet against the company.
JPM Stock Charts
On the multi-year chart with weekly increments we see that JPM stock has once again reached the very upper end of its longer term up-trending channel. This is a result of the recent persistent and steep multi-month rally.
We are also seeing the weekly candles showing buyer exhaustion and the MACD momentum oscillator at the bottom of the chart in notable overbought territory.
While none of this definitively indicates that the stock has to correct in any meaningful way from here, it does likely limit the upside for the time being.
Over on the daily chart we can draw another price channel, this time taking the price action from the past few months. We can see that here, too, in recent weeks JPM stock reached the upper end of this channel.
Earlier this week JPMorgan reported its latest batch of earnings. The initial reaction to those earnings on Jan. 14 was positive and the stock rose 1.2%, albeit well off the intraday highs. On Jan. 15 the stock then fell 1.5%, thus wiping out all of the post-earnings rally.
Trading JPMorgan Stock
In my eyes, the stock’s inability to hold the post-earnings gains and fail around the $140 level shows buyer exhaustion up there. The path of least resistance here is likely somewhat lower for a much needed mean-reversion move.
Active traders and investors could look to play JPM stock from the short side around the $136 level with a next downside target around $133. Any strong bullish reversal, or any break and hold above $139 would be a stop loss signal.
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