Between March 2000 and March 2009, JPMorgan Chase & Co. investors saw their holdings’ value decline by almost 78% as the stock fell from over $67 to less than $15 a share. The next ten years, on the other hand, have been a wonder to behold.
JPM stock rose like a phoenix from its ashes, climbing to over $119.30 per share by February 2018. This ~690% rally was supported by improving fundamentals in terms of rising profits and a strong balance sheet. As of this writing, the stock is not far away from its all-time high. It is fair to say that JPMorgan has never looked better.
Does this mean it is a good investment going forward? Usually, when all looks perfect complacency starts to settle in and the stage is set for an unpleasant surprise. In addition, the chart below provides an Elliott Wave reason for skepticism.
The weekly chart above reveals JPMorgan’s entire uptrend from $14.96 in March 2009. It looks like a five-wave impulse, whose fifth wave is still under construction. Wave (1) – up to $48.20 – was followed by wave (2) down to the 61.8% Fibonacci level at $27.85.
The five sub-waves of wave (3) are also clearly visible. Wave 4 is a triangle, while wave 5 is the extended one among the three motive waves within wave (3). Wave (4) down has been developing during most of 2018 and culminated in the bottom at $91.11 in December.
Not the Time to Extrapolate JPMorgan ‘s Past into the Future
This brings us to wave (5), which we think is still unfolding. The recovery from $91.11 to $117.16 so far has a three-wave structure. This means wave (5) is likely going to be an ending diagonal pattern. Since truncated ending diagonals in fifth waves are extremely rare, it makes sense to expect a new all-time high above $120 in wave (5).
Unfortunately for JPMorgan bulls, when wave (5) exceeds the top of wave (3) the five-wave impulse which has been in progress since March 2009 would be completed. According to the theory, a three-wave correction follows every impulse. This means that instead of celebrating the new record high in wave (5), investors should prepare for a pullback towards the support area of wave (4) near $90 or lower.
Did you like this analysis? Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!