Chart of the day: JPMorgan Fundamentals look up, but technical points down

On Friday, January 14, Q4, the 2022 earnings season officially begins when JPMorgan Chase (NYSE:), along with other global investment banks, releases their quarterly corporate report cards.

Analysts expect JPM to post $3 per share on revenue of $29.87 billion, slightly below the $3.79 EPS and $30.16 billion that came in the corresponding quarter .

Last week, the Fed shocked markets when they signaled a faster move toward rate hikes than investors had anticipated. However, this was good news for the future earnings potential of US lenders.

As the largest US bank by assets, investors in JPMorgan Chase likely expect the financial institution to benefit as higher rates increase the bank's potential mark-up on its own lending rates.

The stock's technical data reflect this optimistic fundamentals-based outlook?

While the stock is up close to 0.5% in pre-market trading, it has weakened since its all-time high in October. Even with its record gains, chart activity showed momentum has evaporated since the March bottom.

Since February, the trading pattern has been that of a potential top in the form of an H&S reversal. If the price hits a new high, the pattern will break. Otherwise, for reasons currently unknown, mighty forces are crumbling from the supply.

Of course we can always blame the pandemic uncertainty, but we cannot say for sure that this is what is really going on. However, we know that a cautious view of the stock is underlined by the long-term view.

In this four-year view, the pattern that emerges is an excessively large rising wedge. It is unclear whether this pattern – which normally takes months to develop, but has been going on for four years here – has the same bearish tendency.

Nevertheless, we note the negative divergences provided by the Relative Strength Index which measures momentum and the Moving Average Convergence Divergence whose name indicates the target.

Conservative traders should wait for profits to be released and price to either hit new highs or complete the top, then until the dust settles, with at least a 3% 3-day filter to avoid a fall before they bet money.

Moderate traders would wait for the same as their conservative counterparts. Except they would wait for a two day filter, 2% to avoid being whip-whipped.

Aggressive traders can go long at a new all-time high or breakout down below the H&S neckline, but with a 1% 1-day filter.

Trading example – Aggressive long position

Admission: $175
Stop Loss: $170
Risk: $5
Target: $195
Reward: $20
Risk Reward Ratio: 1:4

Trading example – Aggressive short position

Admission: $150
Stop Loss: $155
Risk: $5
Goal: $130
Reward: $20
Risk Reward Ratio: 1:4

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