JP Morgan is Chasing Higher

12/31/02 11:01:40 AM

by Andrew Hetherington

I suggest selling into the breakouts of this stock while others are chasing them higher or lower, and buy or sell once again on the throwbacks and pullbacks.

Security: JPM
Position: N/A

Figure 1: JP Morgan's daily chart.

JP Morgan's (JPM) daily chart shows a head and shoulders pattern that is not quite complete. Although caution must be used when trading within the pattern, this type of opportunity can be profitable if traded with a stop-loss along the second fan line (orginating from the head), currently in the $23.20 area. This line slopes upwards so the price will change as time goes on. The stop-loss allows you to protect your downside risk without having to constantly monitor your investments. I also recommend having a predetermined sell order placed when the equity is rising. I use the first fan line in conjunction with horizontal resistance lines to determine a sell point, which would be near the $29.00 area currently. Once again, this line slopes upwards and will change over time. The anticipated breakout will eventually stop and have the customary throwback to the neckline. My suggestion is to sell into the strength of the breakout and buy long on the throwback as a good strategy to accumulate more shares. This is the same technique I suggest when shorting, but in reverse. I suggest selling into breakouts while others are chasing them higher or lower and buy or sell once again on the throwbacks and pullbacks. You don't always get the squeeze you are looking for but by and large this will place you further ahead.

The neckline is in the $25.80 area and if the volume continues to increase, then it should break out. The increase in volume is of paramount importance in this type of situation. If the activity does not continue to increase then the breakout and ascent in price becomes less dependable. In this scenario, rising prices and lower volume, selling at any profit would be a wise choice since a turnaround could happen at any time.

Figure 2: JP Morgan's weekly chart.

Graphic provided by: SuperCharts.

An early warning to watch for is when the third fan line is broken in the $25.20 area. Naturally, this must also have increased activity to be reliable. This head and shoulders pattern like so many others during this time frame has high volume at the base of the head. Similar to Alcoa, there was technical buying on the long-term support.

Andrew Hetherington

Classic Dow Theorist who trades as a pure technician, using pattern recognition.

Toronto, Canada

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JP Morgan is Chasing Higher

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