By J.C. Parets
J.C. Parets is the founder and president of New York based hedge fund Eagle Bay Capital, LLC. You can find his smart commentary at AllStarCharts.com.
There seems to be a lot of commotion these days over this head and shoulders top in one of the most important companies in America. JP Morgan (JPM) has been putting in what most technicians would consider a pretty textbook topping pattern since early May. Now, whether or not JPM breaks the neckline and confirms is still unknown, but the potential is certainly there.
Below is a daily bar chart of JP Morgan Chase & Co going back to the Spring. The left shoulder was put in towards the end of May, the head in July and most recently a really weak right shoulder in September. What stands out to me here is how short lived the most recent rally was. Take note of how much lower the September peak is (right shoulder) when compared to the May highs (left shoulder). This is further evidence that the buyers are just tired:
As we can see in this chart, nothing has been confirmed yet. Once the neckline is broken to the downside, we can then look for potential targets. In this case, you’re looking at about 7 points from the top of the head down to the neckline. These 7 points will take you down to 43-44 depending on whether you’re using closing prices or intraday extremes.
There is also a 200 day moving average right here at neckline support. So I’m not sure how easy it will be to break below these key levels. But something else worth noting is the rollover in momentum. With the new highs in JPM this summer, the relative strength index has been making lower highs – this is seen on multiple timeframes, both daily and weekly charts.
Bottom line, I don’t think JPM just starts crashing from here. I think it will probably take some time to break this big support. But when we’re looking at a stock that has been underperforming the market for 4 months, momentum has been rolling over on multiple time frames, and a text book topping pattern has been forming, I would be really careful. Also, since the company, and it’s sector, is critical to this market, I think we can look at this one as a bellwether for equities as an asset class.