The first part of the year gave us a clear signal that the banks were coming out of a long awaited reversal pattern. The XLF gave us a clear signal in early January.
Two of the "Best of Breed" banks leading the charge were Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM). Today we're are going to choose JPM to take a closer look at. We are looking at this Best of Breed company to see if the time is right to start scaling into a position after the recent pull back in the banking sector.
JPM is a great choice for a portfolio holding, deserving a fundamental look. Not only is JPM on the first tier of the banking industry, profits are exponentially increasing. JPM was also one of the few banks that paid the TARP money back on the first due date.
And with JPM, you are not only getting a best of breed bank, you are getting Jamie Dimon, one of those rare corporate leaders that only comes around once in a generation. He is the Steve Jobs of the banking world. Highly respected, consultant to the government and transforming the banking industry into a new, post-Lehman, people-friendly system.
When is the best time to buy Jamie Dimon's JPMorgan? Recently the banking sector has been a less than desirable trade. We can easily make the argument that a possible top pattern was in development since late March. But as the economy improves and Europe's instability becomes more clear, it will be very evident that the banking sector was in need of a rest after the beginning-of-the-year run up.
In the meantime we will let JPM show us when the time is right. We can see that on April 23 during a triple-digit tape loss JPM was able to trade up a small gain. This 50 DMA bounce is significant, and I would expect further follow-through in JPM in the near term. But, as the chart shows, JPM is broken right now. $44 is going to be difficult resistance to push through.
Looking at the weekly chart, we see an entirely different set of possible outcomes. We see a stock that may still be in corrective mode. Until JPM prints a black open box, caution still needs to be on the downside with JPM. We have not seen this possible reversal pattern yet.
So what to do? If you're a longer-term trader, you need to stand aside with JPM until we get a clearer weekly buy reversal pattern. If you're a shorter-term holder, JPM should have some follow-through up to $44, but until JPM moves through $44 and holds, buyers need to beware further downside possibilities.
Disclosure: I am long JPM.