Why JPMorgan Chase & Co.'s (JPM) Trump Rally Could Still Have Room to Run

JPMorgan Chase & Co. (JPM) has put in an outstanding performance since Election Day

Jan 5, 2017 at 10:31 AM
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JPMorgan Chase & Co. (NYSE:JPM) has been a standout performer, rising 37% year-over-year to trade at $86.31, and tapping a record high of $87.76 on Tuesday. In fact, the stock has been soaring atop its 20-day moving average since early November, joining many of its fellow bank stocks in a strong Trump rally. Despite these technical triumphs, however, JPM could stand to benefit from a shift of sentiment among traders -- both in and out of the options pits -- and analysts, who largely remain on the sidelines.

Beginning with the brokerage bunch, more than half of the 22 analysts that follow JPM maintain a "hold" or "strong sell" rating. And even after a few recent price-target hikes -- including an increase to $80 from $67 at Instinet this morning -- the average 12-month price target on the stock sits at $84.62, representing a discount to current levels. Simply put, a continued round of bullish analyst attention could give the shares a healthy boost.

Elsewhere on the Street, JPM has seen a notable rise in short interest in recent months. While the 45.7 million shares currently sold short represent a modest 1.3% of the equity's available float, this level of short interest is also the highest the stock has seen since in three years. An exodus of recent shorts in light of JPM's continued strength could serve as a boon for the shares.

Options traders have been unusually pessimistic toward JPM, as well. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 50-day put/call volume ratio of 0.93 -- while slightly call-skewed on an absolute basis -- ranks in the bearish 81st percentile of its annual range, meaning puts have been bought to open over calls at an accelerated clip.

What's more, the stock sports a Schaeffer's put/call open interest ratio (SOIR) of 2.50. Not only does this ratio indicate put open interest more than doubles call open interest among options in the front three months' series, but it is seated at a 52-week high. In other words, short-term speculators are more put-heavy now toward the stock than they've been at any other point in the past year. Given JPM's impressive technical showing, though, some of this action may be a result of shareholders protecting paper profits against a pullback.

Regardless, now appears to be a good time to purchase premium on JPM's short-term options. The stock's Schaeffer's Volatility Index (SVI) of 22% ranks in the bottom quartile of all comparable readings from the past year, indicating the stock's near-term options are pricing in muted volatility expectations at the moment. Plus, its Schaeffer's Volatility Scorecard (SVS) of 74 suggest the options market has tended to underprice JPMorgan Chase & Co.'s (NYSE:JPM) ability to make big moves on the charts over the last 12 months.

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