Sunday, December 6, 2009

JPM Churning; Bias to the Downside?

Attached you will see a 5-year chart of the politically most favored large financial company, JPMorgan Chase. Click to enlarge.

Strangely, the "feed" into Yahoo continues to list Chase Manhattan at the top left.

The stock is churning, having gone nowhere for 4 months while the averages have moved up. This is despite very wide spreads between cost of funds and lending rates and rates available to JPM for the purchase of Treasuries.

On a multi-year basis, the stock is churning as well. It is essentially unchanged from 5 years ago, even though its competitive position is vastly enhanced. The nominal dividend is expected to be increased substantially, its CEO is being considered for Treasury Secretary, and all should be looking rosy.

Yet the untrained eye can see a series of lower highs the past couple of years.

I would watch JPM as an extremely important indicator of the health of the financial system and the direction of the market. Financials have led the averages up, down and up again the past 6 years.

In addition to the chart and JPM's failure to respond to ideal financial conditions the past several months, my quite-alterable caution relates to Northern Trust (NTRS), a simpler large financial that quickly repaid the TARP funds that were probably forced on it but whose stock has taken a nosedive after flirting with strength. I watch NTRS as a canary in the coal mine of large financial companies. It is simpler, without all the extraneous derivative stuff that makes JPM and its cohorts completely unanalyzable. (I also watch UMB Financial = UMBF, a well-regarded regional bank holding company which stock has almost completely sat out the moonshot in the financials but which actually looks as though it may be a "buy" now or soon.)

Back to JPM. Not shown, but off a huge move from the bottom in fall 2002 to the peak in 2004, JPM chart looked much like the current one. It then penetrated a rising 200 day moving average to the downside and went flat to down for a year and a half, and the stock market underwent a year-long sideways consolidation for a year before resuming its seemingly inexorable uptrend.

Combining technical with fundamental analysis and earnings estimate outperformance, yours truly likes few stocks, uppermost amongst them McDonald's and Ross Stores now that each has corrected from their highs, but they probably are not predictive of much. On the other hand, I have no interest in JPM as a stock from either the short or long side, but I do feel that all investors should watch it carefully.

An unrelated market note: The jobs number Friday smells like one that will be revised lower. ADP's real-time data and other data such as that from TrimTabs (a recommended read), the ISM, etc. point to it being an upside outlier. Nonetheless, the truly vast amount of money-printing out of the Fed has to go somewhere; I just give earnings due to money-printing a very, very low P/E ratio and the resultant economic activity fueled by those earnings no staying power: that's NO real staying power in my opinion. So to me this remains the mid-1930s or 1970s show: dealing with tough times the wrong old-fashioned way: currency debasement. (It's time to suck it up, America/Mr. President, and recover the right old-fashioned way, with hard work and thrift, not with more and more government subsidies.)

With JPM as a critical implementer of this misguided policy.

Copyright (C) Long Lake LLC 2009

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