Buy the pinata? Here’s a look at JP Morgan (JPM).

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Discussed in this article: JP Morgan Chase ( $JPM )


I’m looking at JP Morgan ( NYSE:JPM ) here. As you may know, as you probably should know, they’re going to be settling with the US government for eleven billion dollars, which is a hefty settlement for all of their wrongdoing.

But what I’m doing is looking at this stock; you can see here on the weekly chart we’ve really got support right down around $50.00 or so. This blue line is the 40-week, or 200-day moving average. I also want you to notice, if we zoom in, it not only has this long tail here, which is really kind of a reversal pattern. Not only has this long tail tested and bounced off of the 200-day moving average, but also the lower Bollinger Band.

So that’s significant, it’s basically crossed the entire Bollinger Band complex and is now down at support. Now here’s the thing, this is a really, really strong market; I think there’s a lot of stuff underneath that’s maybe not so strong, but if you’re in the right stocks this has been just an amazing run and continues to be, and probably will be for some of these stocks frankly, for another month.

As I look at JP Morgan ( NYSE:JPM ) here I’m looking at a top, say right about there, that’s really the trading range, if you need some financial exposure, if you want to buy a stock, say JP Morgan ( NYSE:JPM ), Morgan Stanley ( NYSE:MS ), Goldman Sachs ( NYSE:GS ); I think this is the one right now.

Even though it’s below the 50-day moving average I want you to ask yourself, is this really trending? Yes it’s up in the winner’s circle here, up in the upper right as opposed to the penalty box, lower right, but it’s below the 50-day moving average, it’s above the 200-day moving average, they’re converging, higher high, lower low. Basically I’ve got to just kind of draw a box after this break out around this whole area here.

So the stock is really consolidating, but is all the bad news baked into this stock? I’m going to argue that, yes it is. And so while this is not your instant gratification, let’s buy Facebook ( NASDAQ:FB ) and watch you go to 60.00 before earnings; this is a stock that you look at, you realize that it’s in consolidation, that it makes these runs like this, so you take a small position in the stock right now, you be patient, this is not one that you’re going to get rich on in three days.

You take a small position in the stock, know that it will probably grind around a little bit more, there’s the 200-day moving average, and then when the stock breaks out, we’ll call it say $56.00 or so, because by the time it does break out this is going to be far enough in the past that it’s not particularly relevant, but when the stock starts to break out then you take a little bit more stock.

So you bought some initially right down at support, with a tight stop, and by the way if the stock falls below $50.00, what do you do? You sell it this is not hard. You keep your stop here, and if you don’t want to sell it then don’t keep a stop, just let it go whatever happens. But you put a stop just below support; if the stock falls below that you sell, okay?

If the stock then comes up and runs back above it, you still want to get in, you buy. This is called a whipsaw, we get jigged back and forth, if you don’t like that, if you can’t handle that stuff then you need not trade, because that’s a part of trading, it’s called trading not winning. It’s called speculation; it’s not called a sure thing.

So getting shaken out is a part of trading, but if you just use this type of a tactic, like I see the stock trading sideways, not every stock that I own in my portfolio can be some high-flying thing that’s going to the moon, but you buy some at support, you watch this as it consolidates, and know that at some point the stock’s going to be moving higher and you’re going to have already been involved from the low part in the box, and then you’re buying more at the upper part of the box.

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