JPM – JP Morgan – “Coming out of the Blue!”

JP Morgan is largest money center bank in the United States, with a balance sheet that boosts $2.265 trillion dollars of assets.  If there was one bank to look at to gage the financial health of the US we believe its JPM.  The crises of 2008 will go down in history as the largest financial crises since the Great Depression.  The US banking system led the world into this financial crises and, it’s our belief, the US banking system will lead us out to better economic times ahead.

"Coming out of the Blue" "Better Times Ahead" No way!

Investors and policy makers need antidotal evidence that the economy is on the right track.  With JPM trading above EBV-3, this is a huge plus and confirms the economy is headed in a positive direction.

JP Morgan with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of JPM subsequent to this post will be maintained on Facebook, here.

What is the model price chart saying?

As we have commented in a previous blog about Goldman Sachs, when the market price trades above EBV-3, after being below for a period of time, the market is commenting to participants (Yes, the market talks to those who listen!) on the quality of stated assets on the company’s balance sheet.  Once the market price of JPM trades above EBV-3, the market is starting to believe the stated assets on JPM’s books.

How investors can profit?

Did someone say "Profit"!

A trader/investor should always keep an eye on transits up through EBV-3.  We call this “Coming out of the blue” as the title of this piece suggests.  Why?  Subsequent to an upward transit of EBV-3, stocks tend to have powerful moves, price wise, that can take a stock from EBV-3 to at least EBV, or EBV+2.  Sometimes investors, if patient, can ride their winners all the way to EBV+5.

We look for “break out/pull backs”, for higher probability trades.  This occurs when a stock transits above EBV-3, then pulls back under, then breaks above again over a period of weeks/months.  To us this means the market is undecided in terms of the price action which zone the stock belongs.  When the market price of the security does decide to stay above EBV-3, could be concurrent with industry news and/or corporate action, the price action to EBV is a high probability trade.

Obviously, if the stock transits down through EBV-3, all bets are off!