$JPM Q2 Earnings Cheat Sheet

by Enis July 14, 2014 1:02 pm • Commentary
Event:  JPM reports its Q2 earnings Tuesday before the open.  The options market is implying about a 2% one day move, which is above both the 4 quarter average of 1% and the 8 quarter average of about 1.5%.
Sentiment:  Wall Street analysts are relatively positive on JPM, with only 29 buys, 10 holds and 2 sells, and the average 12 month price target is around $64.  JPM stock is essentially flat over the past year, and slightly negative in 2014.  Short interest is negligible at around 1% of the float.
Options Open Interest:  Total open interest in JPM favors calls over puts by a ratio of about 1.15 to 1.  However, the recent volume has heavily favored calls, as the 1 month volume has a call to put ratio of around 2.2.  The Jul19th 57.50 calls have over 25k of open interest, the most among short-term maturities.  The Sept 57.50 and 60 calls also have over 25k of open interest.  In Jan15 expiration, the 60, 62.50, 65, and 70 calls all have over 40k of open interest.  JPM’s all-time high is $61.48 from March.  
Price Action / Technicals:   JPM has been rangebound for the past year, trading between $50 and the March high of $61.48:
[caption id="attachment_42823" align="alignnone" width="600"]JPM daily chart, 50 day ma in pink, 200 day ma in yellow, Courtesy of Bloomberg JPM daily chart, 50 day ma in pink, 200 day ma in yellow, Courtesy of Bloomberg[/caption]
The 200 day ma, which had held for a couple years, was breached in April after a weak earnings report.  The 50 day ma and the 200 day ma have both flattened out, and are around $56 at the moment.  Short-term support lies at the mid-May low near $53.50, while resistance is around $58, which is near the high of the past month.
Volatility Snapshot:  JPM 30 day implied volatility is only around 17, an indication that options traders expect a continued low volatility environment for the stock:
[caption id="attachment_42824" align="alignnone" width="600"]JPM 30 day implied volatility, Courtesy of Bloomberg JPM 30 day implied volatility, Courtesy of Bloomberg[/caption]

JPM has generally been between 20-25 prior to earnings over the past 18 months.  30 day implied volatility is likely to fall into the low teens after the event.

Our View:  Citi’s better-than-expected report today has raised expectations for the other investment banks reporting this week, including JPM.  The WFC report indicated the difficulty of growing revenue for the commercial banking side given continued low interest rates as old loans roll off, but Citi beat on revenues as a result of its trading business, where the bar was quite low after Citigroup guided to a 20-25% drop in revenue 2 months ago.  The actual drop was only 15%, resulting in the beat.

JPM’s bar for its trading businesses is also quite low, and the report will show whether C was an outlier or the trading environment was not as bad as feared.  The stock is in the middle of its 12 month range and we don’t see a reason for a large move in either direction.  We still view the overall trend for the trading businesses as down, however.