The Daily Breakdown looks at what a sluggish trading week really looks like, as well as the breakout in JPMorgan stock.
Thursday’s TLDR
- Dull markets don’t equal down markets.
- JPMorgan is trying to break out.
- Uber, Shopify tumble on earnings.
What’s happening?
Have you ever heard the term, “never short a dull market?” The S&P 500 was unchanged on Wednesday — literally. That’s the very definition of a dull market.
When volumes sag and the action gets slow, it can sometimes be tempting for traders to take short positions. Oftentimes though, just the opposite is the right course of action.
Now, hold on a minute.
That doesn’t mean that stocks can’t or won’t decline in the short term. But the point — which generally applies more in the low-volume trading stretches of summer — still stands.
Pivoting a bit, crypto has been one area that hasn’t been dull. Bitcoin and Ethereum have been trying to regain momentum, but have struggled to do so lately.
Crypto — and in particular, Bitcoin — can be a leading indicator for stocks. In that sense, it’s no surprise that Bitcoin topped in mid-March and the S&P 500 followed by hitting its high a few weeks later.
But it’s important to remember that, even if the road remains bumpy in the short term, crypto has still done incredibly well. Bitcoin is still up 46% this year and 121% over the past 12 months.
Sometimes, it helps to zoom out and keep perspective of just how far an asset has come even when it feels stuck in the mud at the moment.
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The setup — JPM
Yesterday, I pointed out the recent strength in financials. Today, we’re zooming in a little closer on the sector and looking at JPMorgan.
It’s the largest bank in the US, weighing in with a market cap of $562 billion, and it’s the second-largest holding in the Financial Sector ETF — the XLF.
Shares roared higher throughout Q4 and Q1, rallying 20 out of 21 weeks from the October low. However, it ran into resistance near $200 before selling off on earnings.
JPMorgan rebounded though, and after grinding lower just under downtrend resistance, shares popped on a strong rally. That triggered a breakout and has investors looking for more potential upside.
Bulls can maintain momentum so long as the stock stays above the $188 to $190 zone. If shares continue higher, the $200 level could be back in focus.
On the downside, a break of the $187.50 to $188 level could put the recent earnings low in play near $180.
Options
For some investors, options could be one alternative to speculate on JPM. Remember, the risk for options buyers is tied to the premium paid for the option — and losing the premium is the full risk.
Bulls can utilize calls or call spreads to speculate on further upside, while bears can use puts or put spreads to speculate on the gains fizzling out and the ETF rolling over.
For those looking to learn more about options, consider visiting the eToro Academy.
What Wall Street is watching
SHOP — Revenue grew 23.2% year over year to $1.86 billion and beat analysts’ estimates, while earnings came in ahead of expectations. Yet shares of Shopify plunged on the results, hitting multi-month low after disappointing guidance.
UBER — Uber shares dipped on Wednesday after the firm reported earnings before the open. Even though revenue grew 15% year over year, its earnings result was clouded by “revaluations of Uber’s equity investment,” according to the company. Without it, Uber would have been profitable. While shares are still up 73.9% over the past 12 months, the stock is down about 19% from the recent high.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.