Earnings Preview for JPMorgan (JPM, BAC, WFC, XLF, FAS)

On Wednesday morning will come the highly anticipated news regarding the first quarter earnings announcement from none other than Jamie Dimon and JPMorgan Chase & Co. (NYSE: JPM).  This single earnings event may not set the tone for all companies in earnings season, but it is certain to set the tone for earnings this Friday for Bank of America Corporation (NYSE: BAC) and the rest of the financial sector.  Traders are likely to key off of the very active Financial Select Sector SPDR (NYSE: XLF) and then off of the parabolic Direxion Daily Financial Bull 3X Shares (NYSE: FAS).  The bank’s earnings are probably more like Wells Fargo & Company (NYSE: WFC), but investors and traders alike are likely use them as a benchmark for the entire financial sector.

Thomson Reuters has estimates of $1.16 EPS and $25.48 billion in revenues.  The company does not offer guidance other than trend guidance.  We will be paying attention to JPMorgan’s delinquencies, charge-off trends, and the amount of new loans that they claim.  You will also want to pay attention to regulatory capital requirement commentary, although now that Jamie Dimon and friends can start buying back stock and paying dividends you have to know they are acceptable.  As a reminder on new loans, you have to try to break out the refinancings from the real new business.

You already know that JPMorgan has been green-lighted to boost its quarterly dividend payout and got permission to resume its share buybacks.  We are looking for yet another dividend hike in 2012 and expect the payout to get closer to 40% of the GAAP income.

We took a look at the closest options, which expire this Friday, and we are really only handicapping an option trader’s anticipation of a move of $0.80 to $1.05 based on the closest put and call options.  It might be unusual to expect more but with shares flirting with $47.00 on Tuesday the 52-week range is $35.16 to $48.36.  Shares closed out 2010 at $42.14 but the stock has really been range bound since after the first few days of the year.  What we would stress today is that the 50-day moving average is $45.82 and these shares violated this moving average for only a couple of days last month before popping back up.

A look at the gallery view from Stockcharts.com into the Point & Figure charting analysis gives a $54.00 bullish price objective, but that may be different in the morning based on today’s drop of $0.22 to $46.64.  This actually is not too far from the average analyst price target from Thomson Reuters with a mean target of $55.68.

Keep in mind on the Financial Select Sector SPDR (NYSE: XLF) that JPMorgan is 9.66% made up of JPMorgan, and another 8.5% is weighted by Wells Fargo & Co. (NYSE: WFC) and another 7.06% is weighted by Bank of America Corporation (NYSE: BAC).  The Direxion Daily Financial Bull 3X Shares (NYSE: FAS) is based upon the Russell 1000 Financial Services index, but that is only about 22% banks.  Still, investors will likely run this up or down based upon the news.

This news will be out early Wednesday morning.  Stay tuned…  The full earnings calendar for this week is here.

JON C. OGG