I remain long small portions of Wells Fargo ( WFC) and Bank of America ( BAC) equity, but nothing close to what I held prior to the regional banking crisis back in March. I have also added some minor equity exposure to KeyCorp ( KEY) on the dip. That one's actually trading in the green ... by just this much.
How can I find a reduced-risk option to play this Friday's "bankapalooza" of earnings releases that will be married up to March retail sales and industrial production and probably shaken (or stirred) before we see any final scores posted at day's end? I don't trust Citigroup ( C) , and I have never been a huge fan of PNC Financial ( PNC) , but JP Morgan ( JPM) ? I have been long JPM more often than not over a multi-decade career. Oh, and I kind of like Jamie Dimon. I don't know why. I just think he calls it like he sees it, even if it hurts him in the short-term.
As far as JPM is concerned, Wall Street is looking for unadjusted earnings per share of $3.41 on revenue of $36 billion. This would compare to EPS of $2.63 on revenue of $31.59 billion for the year-ago comps. In other words, we're looking for earnings growth of 29% on revenue growth of almost 15%.
But What Will Banks Reveal?
We all know that Friday will not be about how well JPMorgan or any other bank did for the quarter. What is going to matter will be balance-sheet health. Readers will recall that two months ago, the Federal Deposit Insurance Corporation revealed that the Fed's aggressively higher interest rate policy last year had translated into $620 billion in unrealized losses for assets held on banking balance sheets as of the end of 2022.
What will the banks or Jamie have to say regarding loan growth, or lack thereof? We already knew that banks were starting to tighten lending standards ahead of the regional banking crisis. Demand for credit had not been all that robust since congress's irresponsibly reckless fiscal response to the pandemic.
Now, however, businesses and households will likely be looking for credit or needing to roll over existing debt at higher rates, just as these lending institutions can not ease standards.
Net interest margin has likely been a problem. The environment has been tough. Deposits have become less stable. All as the entire industry will have to show that they are building up reserves in anticipation of residential and commercial defaults as the U.S. enters into recession. Trading? Hmmm ... Investment banking? Dead.
You will not hear a lot of specific forward-looking guidance on Friday, but what is said by Mr. Dimon specifically, will likely move the stock ... and stocks.
To the Point: JPMorgan's Chart
The stock does appear to be coming to a point. Get it?
JPM has seen resistance at rough 62% Fibonacci retracement of the selloff that ran from October 2021 through October 2022. Since selling off this past March, JPM has found steady help at its 200-day simple moving average, but has had difficulty in overcoming its 21-day exponential moving average. Top that thin green line? JPM would then have a shot at the thin blue line (the 50-day SMA). Lose that thin red line? Well, then it gets a bit nasty.
Trade Idea (minimal lots)
- Purchase one April 14 JPM $129 call for about $1.80
- Sell one April 14 JPM $$134 call for about $0.33.
Net basis: $1.47
Note: Trader is risking about $1.47 to try to win back a maximum of $5 for a profit of $3.53 (+240%).
Second Note: A trader open to downside equity risk, could sell (write) one April 14 $124 put for roughly $0.52, thus reducing net basis to $0.95 and increasing potential profit to 426%.
The catch: The trader could end up owning 100 shares of JPM on Monday at a net basis of $124.95 with the shares trading below $124.
