Sunday, January 24, 2010

JPM and the Market: Downside Risk Increasing

A few weeks ago, I suggested the JPM would be an important stock to watch as a bellwether for the averages. The 2 year technical chart and the 5 year charts shown here suggest real danger. After that post of early this year, JPM moved up but to a lower high. It has now broken its 50 and 200 day moving averages (smoothed = sma) to the downside for the first time since 2008. Fundamentally, its 2010 estimated EPS have begun to erode.
Goldman Sachs also has a similar chart; its EPS are almost irrelevant as it manufactured 2009 Q4 earnings by shrinking bonuses severely. BAC, which had a weaker rebound than GS or JPM relative to its 2008 high stock price (though a larger bounce off the bottom), is close to the same sort of technical breakdown.
On the 5 year chart, $40 has been an important support level for JPM, with $30 the next level.
That the above is happening with the yield spread at extremely high (favorable) levels is an unequivocally bad sign. None of this is determinative or permanent, of course, but the bear case is concisely and well made lately; see Comstock Partner's latest, Banks Are Not the Only Problem, and involves both sentiment and fundamentals.
Short-term, the apparent salvaging of the Bernanke nomination is going to lead to short-covering and buying tomorrow, one would think, but insiders know he has been a disaster for the economy and the markets. He is like the doctor who kept treating Michael Jackson's addiction. Who knows how many times the doctor bailed MJ out of trouble? Eventually MJ met the fate of so many addicts. Gentle Ben may be well-meaning, but dropping debt "money" out of helicopters is running out of potency.
Debt and credit are just promises, promises; air; words; intangibles. Neither the borrower nor lender has a secure position.
Only through a true ownership culture (forget the bogus Bush version built on mortgage fraud as we have now learned) and one of thrift and prudent lending on straightforward terms, a society in which finance plays a small and non-dominant role, can a healthy economy and truly attractive financial markets come to pass.
Currently finance is in a permanent world in which one has to suspect disbelief in order to make an investment. Thus short money is at zero.
We are in a financial Bizarro world. But charts are factual. The Fed can't spin them.
Ignoring a chart breakdown of JPM as well as of GS, is quite a gamble.
Copyright (C) Long Lake LLC 2010

No comments:

Post a Comment