JPMorgan (JPM) is trading within a channel after a nice move up, and I am wondering if it will continue up in 2013. After the fiscal cliff is solved, the market may see a boom, but what types of challenges are facing JPMorgan? Let's take a look!
Customer Confidence
One of the big things the bank has going for it is excellent consumer confidence. JPMorgan saw its score in customer service climb 6% from last year behind smaller banks and credit unions but better than all the larger banks. Big banks in general have done well after massive dissatisfaction because of the bailouts and the attempt to pass higher fees on to its customers. Customer satisfaction scores have caught up to pre-financial crisis days. High fees were the greatest concern for customers. Chase's score showed the bank is boosting the reliability and quality of its banking experience, producing increases in the past two years.
Are there any reasons not to keep the stock or not to buy it?
With outstanding customer service going for it, the bank has a couple major challenges ahead. JPMorgan mentioned higher net charge-offs because of mortgage loans gone bad in the third quarter. CEO Jamie Dimon made mention of these and that the bank is experiencing a higher than normal amount of defaulting on mortgage loans. Costs related to these are expected to increase in the near future. Look at competitors next to JPM and one can observe how big this mortgage defaulting problem can be for the bank. JPMorgan has recently hired nearly 13,000, many of whom are helping process these troubled mortgages.
JPMorgan $825 million
Citigroup (C) $635 million
Wells Fargo (WFC) $567 million
Bank of America (BAC) $435 million
I recently read an article by Amanda Nix who mentions mortgage-backed securities repurchase claims that the company may be facing.
The bank reveals that it is currently being targeted by lawsuits demanding that it repurchase about $140 billion of mortgage-backed securities that have gone south. Since litigants usually claim a failure rate of more than half, that's a whole lot of scratch, for which the bank could be on the hook.
So what is the possible outcome of these burdens? We could see a big dent in the company's profits and in turn-- earnings. Are the earnings we saw in this last quarter the best we are going to see through 2013? This could cause the stock to lose value for a season.
(click to enlarge)
Technically Speaking
It looks like the stock has been caught in a trading channel for the last 10 weeks of (39-43). Prior to the start of this, I observe nice negative divergence taking place in the RSI Indicator when the stock was first signaling oversold conditions. From that point on the stock climbed higher but the RSI signaled continuing weakness. Even the MACD MA's were in bullish territory but declining. With the Bollinger Bands also moving sideways, I have not determined if I can see a future direction of the stock. II believe a lot would depend upon the 50 day MA and how it is used back the stock in the coming weeks. If it continues the same pattern, I would expect it to bounce off its present high and retract for a bit before moving back up.
The Option Trade
Presently trading at 42.71, I am expecting the stock to move down from the top if its trading zone.
- Buy the February 2013 put with a strike of '43' (priced at $1.98)
Sell a February 2013 put with a strike of '44' (priced at $1.48)
Net Debit to Start: $0.50
Maximum Profit: $0.50
Maximum Risk: net debit
Maximum Length of Trade: 13 weeks
Reasoning behind the Trade
The stock is in its trading zone and should move back.
Fiscal Cliff may bring financials down short-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
