JPMorgan Chase (JPM) is approaching a critical technical support level ahead of its earnings release next week, following recent sector underperformance. Historically, buying JPM after a 10% decline, as seen currently, has proven rewarding, making its reaction to earnings pivotal.
Given JPM’s significant weight as the second-largest holding in the Financial Select Sector SPDR Fund (XLF), its performance will also influence the broader financial sector and, by extension, the wider market.
JPMorgan Chase (JPM) is poised to kick off earnings season for major financial stocks next week, and its recent technical setup is drawing significant attention after weeks of sector-wide underperformance. Analyzing the weekly chart reveals that JPM is currently testing a critical uptrend line. This line also serves as the lower boundary of an upward-sloping channel that dates back to the stock's 2022 low. Historically, JPM has tested this support line multiple times over the past four years, with each instance leading to a notable rebound, most recently observed in April.
As the upcoming earnings announcement looms, a pivotal question emerges: Can JPM once again honor this crucial support level and initiate another upward move? The context of its recent decline adds perspective. JPM is presently trading approximately 10% below its 52-week high, categorizing this pullback among its more significant drawdowns in recent years. While some declines have extended further, reaching 15%–20%, such instances have been relatively infrequent. Historically, outside of major market disruptions like April's tariff-driven sell-off, investing in JPM after a 10% decline has generally proven more profitable than selling into weakness. This historical pattern is a key consideration, irrespective of the immediate market reaction to next week's earnings figures.
Furthermore, JPM's performance extends beyond its individual stock dynamics. As the second-largest holding in the Financial Select Sector SPDR Fund (XLF), trailing only Berkshire Hathaway, JPM holds considerable sway over the broader financial sector's trajectory. A 10-year relative performance chart illustrates JPM's consistent outperformance against the broader financial sector for much of this period. A notable exception occurred between late 2021 and late 2022, coinciding with the S&P 500's (SPX) bear market. A successful rebound from JPM's long-term support line would not only be constructive for the stock itself but could also provide a vital boost to XLF. Given the significant influence of financials on the broader market, JPM's earnings reaction becomes a particularly important event to monitor closely.
Frank Cappelleri, founder and president of CappThesis, an independent research firm specializing in chart and statistical analysis for active investors, authored this analysis. He brings 25 years of Wall Street experience across various roles, including equity sales trader, technical analyst, research sales specialist, and desk strategist.
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