JPMorgan: Taking Some Profits

Summary

• JPMorgan is up nearly 70% since I entered the stock at $67.90 roughly 16 months ago.
• The stock has been much stronger than the market, having advanced three times the market's pace in that period, and continues to be a leader.
• Given the significant unrealized gains, I have exited one-fourth of my position at $113.00 for a 66% gain but continue to hold three-fourth of my position.

In Q3 of 2016 when the banking sector (XLF) continued to get talked down by most analysts due to its underperformance, one bank was hanging out just above a 10-year breakout level. The stock had shrugged off the majority of the weakness in the banking sector and was one of the only large-cap banks sitting within a hair of 52-week highs. This stock was JPMorgan (NYSE:JPM), and it's managed to significantly outperform the XLF over the past year and a half (70% gain vs. 42% gain). Given the orderly way the stock was trending up, I decided not to take any profits on the way up and to let the position ride but have finally taken off one-fourth of my position into strength a couple weeks ago at $113.00 per share. I continue to hold three-fourth of my position and see no reason to exit the remainder as the stock continues to act like a leader vs. the index and other banks.

Just over 16 months ago, I first wrote on JPMorgan as I was impressed by the way the stock was holding up and the setup it was exhibiting. I shared the below chart from October of 2016 with the stock having broken out of a one-year ascending triangle and showing commitment to the breakout thus far. The stock was sitting just below all-time highs near the $72.00 area, and often after multiple tests of resistance, these levels act as a magnet for price. Not only did the stock head to the $72.00 level in short order, it's since nearly doubled since moving through that key area on the long-term charts. Below are the before charts of the stock from a daily and weekly perspective, and just below there is the current after chart that shows the significant progress the stock has made since.

(Source: TC2000.com)

(Source: TC2000.com)

(Source: TC2000.com)

As we can see from the above chart, the stock has continued to move higher in a nearly perfect fashion for shareholders, as it has done with almost no real turbulence. These are the positions I like the most, as they are easy to hang on to, and I'm not prematurely stopped out of them. Despite the nearly 80% move from the breakout level at $68.00, the stock has never even given up more than a 13% pullback. Despite the general market pulling back 12% recently and heading down to its 200-day moving average, JPMorgan stood its ground and corrected less than the market and did not even come close to testing its 200-day moving average. While the market came back into the October 2017 trading range, JPMorgan did not come any near its November trading range. This is a clear sign of strength for the stock and a reason that I've elected to hold onto the majority of my position.

(Source: TC2000.com)

Taking a look at the daily chart of the stock below, we can see that little to no technical damage was done in the recent market correction. The stock continues to find support on each test of its rising 50-day moving average, and the 200-day moving average continues to trend higher in with a decent slope that supports any sharp pullbacks being bought. I would expect that any trade down to the rising 200-day moving average would actually provide a buying opportunity, as long as the $99.00 level is not lost on a weekly closing basis. Ideally, I would like to see the bulls play some defense here at this current test of the 50-day moving average as I am generally not elated when 50-day moving average tests become more frequent. This is not a reason to exit my position, and I have no intention to sell if the 50-day moving average is lost, but a break of this level may force some consolidation in the stock.

(Source: TC2000.com)

Looking at the weekly chart where I am managing my position, the stock has been bought up immediately on each test of the 40-week moving average, and I do not expect this to change. I do not have a crystal ball and obviously cannot foresee the future, but the stock would be heading into deeply oversold levels if it does move down to this area while reaching a spot where buyers have come in during the past two years. The 40-week moving average currently sits at a value of $99.32, and as long as there is no weekly close below this area, I have every intention of staying with the remainder of my position.

(Source: TC2000.com)

While buying weakness and cheap P/E ratios seems to be the norm with most analysts, I have always preferred to do the opposite. An example of this I referenced in my October 2016 article was Wells Fargo (WFC) vs. JPMorgan and why I was purposely avoiding Wells Fargo to buy the more expensive JPMorgan. Cheap is often cheap for a reason, and more often than not, I've found cheap comes at the expense of no momentum. While it may seem better to buy a stock with a 14 P/E ratio vs. a stock with an 18 P/E ratio in the same sector, one is doing so at the cost of buying a stock in a bear market vs. a bull market. In October 2016, while JPMorgan was making new 52-week highs, Wells Fargo was busy making new 2-year lows. The cheaper stock that looked like it had a large runway to move up was instead a very clear value trap when compared with the majority of the other large banks.

(Source: TC2000.com)

(Source: TC2000.com)

While there's no question that Wells Fargo won the first 1,000 meters of the race based on the spike it saw in the coming quarter, it's been lapped by JPMorgan a few times in the marathon and the long game. Wells Fargo is currently up 29% over the past 16 months, while JPMorgan is up 70% and has done so with significantly less volatility. I don't know about you, but I have a good idea which chart of the below two I would rather be long. One looks like a Sunday drive with a couple pit-stops along the way, the other looks like an off-road excursion with a couple roll-overs that barely got to the destination in one piece.

(Source: TC2000.com)

(Source: TC2000.com)

From a fundamental standpoint, things are certainly looking pretty rosy for the company. JPMorgan reported $5.80 in EPS for 2015, $6.19 in EPS for 2016, and $6.84 in EPS for 2017. This represented single digit to barely double-digit growth for three years in a row, but things are certainly changing for the better based on 2018 estimates. Full-year 2018 EPS estimates have come in at $8.84 per share, and this would represent an increase of nearly 30% year over year. This is a clear-cut sign of growth accelerating in this name and at levels we have not seen on a year-over-year basis in the past seven years (the best annual EPS growth since 2010 was the 2012-2013 period which showed nearly a 20% increase).

Based on the strong fundamental backdrop for the stock looking into 2018, the strength of the XLF as a sector vs. the S&P 500, and the fact that JPMorgan continues to be a leader within the market and the sector, I see no reason to abandon the stock here. There's no question the markets have become a little more turbulent as of late, but JPMorgan has weathered the storm easily and continues to hold up well.

(Source: GreenvilleDailyPhoto.com)

I continue to remain long a three-fourth position in JPMorgan, and as long as the $99.00 level is not lost on a weekly close, I plan to remain long my full position. A weekly close below the $99.00 level would likely trigger at minimum a partial exit and most likely a full exit on my position. While a test of the 200-day moving average is possible and I remain open-minded, I believe this would present a buying opportunity rather than be a time to panic.

Analyst’s Disclosure: I am/we are long JPM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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