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JP Morgan Chase: Technical and fundamental recommendation

Jan. 03, 2011 8:56 AM ETJPM1 Comment
Neal Razi profile picture
Neal Razi's Blog
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JP Morgan Chase has been a stock on my watch list for some time due to its world class management and valuation. Recently a few technical indicators along with the fundamentals have caused me to recommend buying, and I thought I'd share my reasoning with the readers here at Seeking Alpha.
First, I have thought JPM was in an ascending triangle for some time.

Ascending Triangle: JPM

You will notice that the stock hits near 41.50 4 times over 5 months before crashing through it Dec 22 on heavy volume. Also note the successively higher lows on each dip.
Following the normal model of an ascending triangle leads to a possible price of approximately $47 on the breakout. To find the price target, add the difference between the breakout price and the lowest dip ($41.50 - $36 = 5.50) to the breakout ($41.50 + $5.50 = $47).
Furthermore, this last week the candlestick chart showed an interesting formation.

Close to a Rising Three Method

It's very close to a "rising three methods" except that the final up day did not break a new high. Still, it's similar enough to warrant attention.
I do not like to trade on technicals unless I can fall back on a stock as a good investment, and Chase looks very attractive to me at these levels. Morningstar has it at 4 stars and S&P at 5 stars with a target of $47, a 10% upside.  It's less than 12 times earnings and close to book value. Book should rise from these levels
and they've been buying back billions of dollars of shares. They are reputedly ready to announce the reinstatement of their dividend.  All of which should lead to upwards price movement. Loan quality is rising, charge offs lessening, and they have been steadily releasing reserves.  Their investment bank division has even won an award for best IB recently.
With all this in mind, I'd like to recommend that you think about adding Chase to your porfolio.  Thank you for reading.

Disclosure: I am long JPM.

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