Tuesday, July 12, 2011

Trade Update: JPM

There is the 24 week chart of J.P. Morgan JPM in the daily time frame. The good news for our short position is that it closed beneath $40 for the first time in about two weeks. The bad news is that it might be setting up for a double bottom right there.

A double bottom is just the inverse (not the reverse of) of a double top. Go back to February of this year. You can see how J.P. Morgan topped out at about $48 share. Then in April it topped out at just under $48 share. The low point in March was about $43 a share. When $43 a share was broken on the downside in April the double top was confirmed. Now look at the inverse action of the last couple weeks. You can see the same kind of thing setting up there.

You can see how the shorts drove shares down to $39.50. When the shorts bought back their positions the stock rose above $41.50. That short covering rally has ended and the bears have again pushed the shares down to $39.50, but not below that. If the Bears are unable to push J.P. Morgan below $39.50 they will have to start buying it back again. We will be one of them as our stops are set at $42.75.

The only possible indicators I see are the moving averages and the stochastic. Both the 50 day moving average and the 100 day moving average have negative slopes. And stochastic is definitely heading down with the red line separating from the blue line, indicating that downward momentum is gaining. But Rome momentum stops when it hits solid ground. There's nothing we can do with this one wait and watch. Keep stops at $42.75.

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