The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) has done well this year and has soared to a record high of $56.65. It has jumped by 13% and is hovering at its all-time high. Notably, the stock has jumped by over 80% from its lowest level in 2022.
JEPQ’s total return, which includes dividends, has risen by 23.3% this year, while the Invesco QQQ ETF (QQQ) has risen by 25%. This article explores some of the reasons why the JEPQ ETF has more upside in the coming months.
How the JEPQ ETF works
The JEPQ ETF is a popular asset that gives investors an exposure to companies in the Nasdaq 100 index, one of the most popular indices in the United States. It then rewards these holders with regular monthly payouts.
JEPQ invests at least 80% of its funds on companies like NVIDIA, Apple, Microsoft, Amazon, and Meta Platforms. Other top companies in the fund are Broadcom, Tesla, and Netflix.
It then uses the remaining funds to write call options on the Nasdaq 100, which gives a holder a right, but not the obligation to buy an asset at a certain price. By writing the call option, the fund receives a premium payment.
It then makes these premiums and dividends in the form of monthly distributions. This explains why the JEPQ ETF has a dividend yield of about 9.36%.
Therefore, the way it is structured, the JEPQ ETF makes most of its money when the Nasdaq 100 index is rising. However, because of the strike price, these gains can be limited if the index rallies sharply, as it has done in the past few months.
Catalysts for the JPMorgan Nasdaq Equity Premium ETF
There are several potential catalysts for the JPMorgan Nasdaq Equity Premium ETF. First, American companies are doing well as evidenced by the ongoing earnings season. Most firms like Netflix, Microsoft, and Google published stronger-than-expected results.
According to FactSet, the blended earnings growth of all companies that have published their financial results so far was 5.3%. This is the fifth consecutive month of earnings growth, which is a positive sign.
Second, technology stocks will likely thrive as interest rates continue falling this year. The Fed has already slashed rates by 0.75% this year, and it has hinted that more of them were coming.
Besides, inflation is moving towards the 2.0% target, while the labor market is not doing well. The most recent data showed that the economy added just 12,000 jobs in October, much lower than the expected 100k.
Third, Donald Trump has been good for stocks over time. Most equities surged after his election in 2016, with the momentum ending after the COVID-19 pandemic. That happened because of his focus on deregulation and tax cuts.
The risk, however, is that Trump has also pledged to introduce more tariffs, which could lead to a lengthy trade war that benefits no one.
JEPQ ETF stock analysis
The daily chart shows that the JEPQ ETF stock has been in a strong bull run in the past few months. Most recently, it crossed the important resistance level at $54.12, its highest level on June 11. By moving above that level, the stock invalidated the double-top pattern that was forming.
JEPQ has also remained above the 50-day and 100-day moving averages. At the same time, the Relative Strength Index (RSI), Stochastic Oscillator, and the Percentage Price Oscillator (PPO) have all pointed upwards.
Therefore, the JEPQ ETF stock will likely continue rising as bulls target the next key resistance level at $65. A drop below the support at $45 will invalidate the bullish view.
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