The banks have been lagging this market for months as the dark cloud of regulatory reform has been hanging ominously over the sector. Goldman Sachs (GS) has been the company in the headlines, but other leading names like JP Morgan Chase (JPM) have been beaten down as well.
We have largely shied away from bank stocks because of the headline-driven nature of their moves, but we finally see a compelling area for a trade at a time when the regulation debate seems close to a conclusion.
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JP Morgan has been stuck in a descending channel since mid April as it has pulled in more than 20% off move highs down to the $38 area. One thing to remember, though, is that descending channels typically resolve to upside. When there is a catalyst for the trend to be broken, the move can often be explosive. The market likes certainty, so even if the financial reform bill potentially eats into a piece of JP Morgan's profitability, the relief of having the issue settled should provide a strong bounce. The stock is already pricing in an unfavorable bill, so anything less unfavorable will be seen as bullish.
Our buy area is $38.30 - $38.50 on big volume, which could take us to $40ish very quickly just in time for options expiration on Friday. Resistance level two would be around $41.75 - $42.25. We will focus on being in size for this quick momentum-type move, but if market conditions continue to improve, JP Morgan could represent a tremendous value for a long-term buy in this area.
By Scott Redler, trader, T3Live.com
