Multiple JPMorgan Chase (JPM) insiders sold shares in the company in the past couple of weeks since the bank posted its third quarter earnings. The flurry of selling is "unusual," Ben Silverman of InsiderScore.com told CNBC, particularly as similar patterns have not been seen at other banks. Could this support the signs of a slow down I originally thought was coming?
Last time I wrote an article on J.P. Morgan, it was early September. At that time, I observed the stock was going to slow down. One of the reasons I spoke of was Basel III and that the banking industry is pleading with the government to lighten things up a little. Capital requirements are too severe with an overt emphasis on the real estate markets-and this could cause lending problems. Smaller banks will also be affected as this was designed more for larger banks during the 2008 crisis. It is too soon to see what effect Basel III will have on housing costs and lending practices. J.P. Morgan's profits surged 34% in the third quarter as the country's largest bank by assets saw its mortgage business boom and market share grow. The author is still writing the outcome of Basel III on JPM. Only time will tell what happens.
Now as we are close to the election, the reality of 2013 not being a stellar year is creeping up on the markets and the financials are one of the first sectors it will affect. Keeping in mind the fiscal cliff problem will be even more dramatic on the markets. I see in the present turnaround the beginning of something that may last into December, quite possibly.
This is the original option play I suggested:
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The Options Play
- Buy a March 2013 put with a strike of '39' (priced at $3.40)
- Sell a March 2013 put with a strike of '38' (priced at $2.87)
- Net Debit to Start: $0.53
- Maximum Profit: $0.47
- Maximum Risk: net Debit
- Maximum length of Play: 7 months
Reasoning behind the Trade
- Poor earnings projections will not sit well with the financial markets.
- The possibility of housing prices stumbling with the coming of Basel III.
- Fiscal cliff worries will not bode well on markets post election
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It looks more and more like this particular play may pan out well.
(click to enlarge)
Technically Speaking
JPMorgan has consistently moved up to a peak in mid-October and has backed down since that time. Is this season of backing off the recent peak, will the stock move up or will it turn back? If we observe the RSI indicator, we can see a negative divergence taking place. This divergence is a sign of weakness in the continued direction of the stock. It is a good sign of a turn back in the stock. We do not have a divergence in the MACD but the indicator was indicating a bearish influence that supports the RSI. If this is an indication of a turn back, then it is just at the beginning. This is the first time in 7 weeks the stock pushed through the middle of the Bollinger Bands. I would not be surprised if the stock turned back. It will take longer to find out, but the stock sure appears to be moving this way.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
