MorningWord 9/26/13: Multiple Inputs Point To Sentiment Shift – $JPM

by Dan September 26, 2013 9:04 am • Commentary

MorningWord 9/26/13:  Tuesday’s close in JPM, below its 200 day moving average for the first time since August 2012, was nothing short of ugly.  On that selloff, Enis made the case that despite the mounting negative news-flow, a weak technical backdrop and valuation that reflects the “pre-whale” sentiment, that the stock was likely to hold and bounce (read here).  His trade was of the fast money variety, and was out for a quick gain yesterday, but heading into Q3 results on Friday Oct 11th, the stock appears to be sitting on a crucial make-or-break level.

The one year chart below has been all over the financial blogosphere for the last few days, usually with the label of “textbook” or the “mother” of all head and shoulders tops.

JPM 1yr chart from Bloomberg
JPM 1yr chart from Bloomberg


A picture says a thousand words.  Few technicians would argue about the pattern, the close below the uptrend (on big volume) that has been in place since last Nov is ugly, and the next real level of support below the 200 day moving average is probably in the high $40s.  But the stock held, and in fairly impressive fashion on a day where settlement terms with the Justice Dept (regarding mortgage bond sales among other things) that have been rumored in the press keep skipping higher by billions of dollars.  Sell the Rumor, Buy the News?

JPM for years during and after the financial crisis had been the apple of most financial investors’ eye, but since the revelation of their mismanagement in the CIO’s office in London, the bloom has been off the rose a bit. While the stock still commands a slight valuation premium to its peers, it has become less prevalent of late with its price to book value at .99 vs C at .78 and  BAC at .70.

Aside from valuation, the stock, has shown weak relative strength to the broad market (JPM down 9% from 52 week highs made in July, while the SPX is down just 2.25% from the all time highs just last week), and to its peers BAC & C, which nearly made new 52 week highs with the market last week.

But it’s not just the technical backdrop that’s concerning.  As Bloomberg reported yesterday, Deutsche Bank voiced concern about the third quarter:

Deutsche Bank AG (DBK) co-Chief Executive Officer Anshu Jain said third-quarter revenue from trading debt probably slumped at Germany’s largest bank.

“We currently anticipate debt sales and trading revenues in the third quarter to decline significantly from last year,” Jain, 50, told investors at a conference in London today. “Market activity was substantially lower which has affected our corporate banking and securities revenues.”

In addition, we already know that mortgage activity has been weaker in the third quarter based on comments from WFC and BAC management in the past month.  So the fundamental business trends for a bank like JPM don’t look particularly favorable, especially when management seems most focused on dealings with lawyers than dealings with clients.

Jamie Dimon is no longer the heavily decorated Boy Scout of Wall Street.  With regulatory sharks on the prowl for each and every slip-up, the stock might be on the verge of a major slip-up as well.