JPMorgan (NYSE:JPM) will report third quarter results on October 13 before the start of trading. It is not expected to be a strong quarter for the company, with earnings and revenue forecast to plunge. It is likely one reason why some options traders are betting that the stock declines following those results.
The technical chart is weak for the bank as well, suggesting that more declines lie ahead for the company. You can track all of my Seeking Alpha articles on this Google spreadsheet.
Analysts forecast earnings to have declined by about 19% in the third quarter to $2.17 per share. Meanwhile, revenue is estimated to have fallen by about 6.3% to $28.2 billion. It is worth noting that the company’s revenue estimates had risen sharply since September 24, when they were estimated at approximately $27.5 billion, while earnings estimates stood at $1.94 per share.
Additionally, net interest income is estimated to be just $13.5 billion, which is down from estimates for $13.7 billion at the beginning of September. Meanwhile, the tangible book value of the company is estimated to be around $62.75.
Guidance for the fourth quarter is not expected to be much better, with forecast for revenue falling 8.2% versus last year to $26.8 billion and earnings declining 27.1% to $1.87 per share.
The low expectations and weak forecast are likely why traders are betting that JPMorgan has limited to no upside. In fact, on October 7, the open interest levels for the November 20 $100 puts and $100 calls both increased by about 10,000 contracts. When digging through the data, it appears the puts were bought, and the calls were sold, creating a spread transaction. A bearish bet that JPMorgan stock is trading below $100 by the middle of November.
Additionally, when examining the technical chart, we see that JPMorgan fell below a significant uptrend that had been in place since the March lows. The stock fell below that trendline in the middle of September and has been unable to reclaim that trend. On October 6, the stock came very close to the uptrend but failed to retake it. Should the stock fall below $97.50, it’s likely to revert to its lows around a price of $88.50. The RSI is currently trending downward, suggesting that momentum is leaving the stock. However, should the stock continue to rise and push above resistance above $104.80, it could climb to as high as $115 per share.
The outlook for the company and economy remains highly uncertain, which is likely to weigh over the short to medium term. Add in a low-interest-rate environment that is likely to keep revenue from net interest income suppressed for an extended time, and it would seem that the stock is likely to struggle for a while longer.
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