EOT Trade Alert – April 17, 2009

| April 17, 2009

April 17, 2009

Trade Alert:

   Buy JPM June 2009 $37.50 CALLS at $2.25 or better (JPMFU)

Company Background:

JPMorgan Chase (JPM) doesn’t need much of an introduction.  This international banking giant has been all over the news lately.  They primarily operate commercial banks and an investment banking firm.

Short-Term Catalyst:

Investment dollars are pouring back into the financial sector.  The financial sector is up over 80% since the March 9th low and it’s showing no signs of letting up.

And JPMorgan is the strongest financial firm of them all.

They’re led by CEO Jamie Dimon who is saying all the right things.  Amazingly, they are in position to pay back the TARP funds.  Although it isn’t going to happen until the government lets them.  It indicates they are running things the right way.  This isn’t the case for many of the banks who are clinging to life because of their access to these funds.

Not only are they one of a few firms in position to pay back the TARP funds today, they also reported earnings yesterday.

And they beat analysts’ estimates.

They reported EPS of $0.40, $0.08 better than estimates, on strength in their investment banking business.

But I think they understated their earnings.  You see they bumped up their loan loss provision by $4.2 billion to $8.6 billion for the quarter.  When a bank increases their loan loss reserves, this money comes right off the top reducing their income.

Now I don’t know what kind of losses they’ll experience but this amount seems overblown compared to the size of their loan portfolio.  Especially in light of the lower than expected initial jobless claims.

This is the strongest financial stock out there.  Any good news out of the financials will send this leader higher.  And, Citibank (C) reported better than expected earnings this morning.

Look for good or less bad news out of Bank of America (BAC) and the regional banks earnings calls to send this stock higher.

But where it gets really interesting is on a technical basis.

The stock has closed above its 200-day moving average twice in the past four days. This level usually acts like a brick wall the first time a stock reaches it.  We’ll often see a pull back the first time this level is reached.  But it’s simply traded along the MA line for a couple days.  The momentum to overtake the 200-day MA this quickly points to a continued run to the upside.

Trade Details:

Option Ticker Symbol: JPMFU
Underlying Stock Symbol: JPM
Current Bid-Ask Price: $2.00 – $2.02
Option “Buy Up To” Price: $2.25
Break-Even On Stock At Expiration: $39.75
Maximum Risk Per Contract: $225

Exit Strategy:

JPM is trading at $33.10 per share.  Resistance levels will be at $37.50 and again at $42.  Remember we want this stock to move higher.  Support levels will be at $28 and $25.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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