Open mouth, insert foot. Last we heard from Jamie Dimon he was preempting the Federal Reserve Bank and announcing JPMorgan's (JPM) dividend hike following the stress test results. And now he pulls this zinger. After complaining of restrictive policies towards the banking industry, Mr. Dimon, has given all the Volcker proponents some major ammunition as he sinks into a "whale" of a trade. Furthermore, notice on the chart how JPM began to top out at the end of March, coinciding with the discovery of the problem (curious to see if there was any insider selling during that period). All those folks that followed the herd into JPM after the dividend hike are now seven points underwater with little hope of getting back to even in the near future.
"Charts courtesy of Neovest"
I do not want to go all "Black Swan" on you, but this is unerringly similar to how the banking crisis started in 2008. A bad loan here, a bad loan there, KABOOM, down goes Bear Stearns, Lehman Brothers, Wachovia Bank, Washington Mutual Bank, Fannie Mae, Freddie Mac, American International Group (AIG) and Merrill Lynch (for all practical purposes). I'm not saying that we are going to have another financial crisis, but risk management is obviously still an issue in the banking sector.
Enough of this pessimism, that is not what you readers want to hear. How about how well the market held up on Friday? After opening near the overnight lows, the market rallied and posted a modest loss on the day. A while ago, I was discussing the all important level of 1400 in the June futures. Now that level has moved down to 1350.00 (Friday's close). Although the index rocketed up from this level in early April (aided by a strong earnings season), now the market is just sitting here. And with Friday's nearly matching highs and lows, a big move is on the horizon. If we can clear 1364.00, all is well and we may move back up to 1400. However, if 1344.00 is taken out, the weekly low 1339.25, will be just a resting stop for the move to 1300.
Apple (AAPL) rallies are certainly not what they used to be, but neither are the breaks. Not sure if this makes any sense or not, but on rallies it "feels" like the stock is being sold instead of being bought. In other words, the stock for sale is increasing the higher the price goes, and when the momentum and High Frequency Traders are done racing ahead of these orders, AAPL flops right back down. Similar to the June futures, AAPL is winding up for its next big move. After trading in a measly 17 point range last week, AAPL needs to clear 576 to rally. Look out below if 560 is taken out.
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Exxon-Mobil (XOM) paid out its hefty dividend this week and held its ground. Investors that missed out on all the opportunities above 87 to get out, have lowered their expectations to 84. Even though XOM made a high on Monday at 84.79, it struggled at 84 for the remainder of the week. Until XOM can get back above and hold that level, expect continued weakness. On the downside, if the double bottom from Thursday (82.55) and Friday (82.54) does not hold, XOM may find itself trading in the 70 handle for the first time since mid-December.
International Business Machines (IBM), what a gnarly issue. If one does not sell it when it is going straight up or buy it when it is going straight down, good luck, IBM is devoid of any true liquidity. To be honest, if I was a fund manager with a large holding in IBM, I would be seriously considering lightening up, if IBM keeps dancing around 200. And that is exactly what is happening, with three of the last four lows between 199.72-200.02. IBM needs to get away from this level now. Obviously, some fund is thinking about this already and targeted the 203 level as an exit point evidenced by the triple top at Tuesday (203.06), Wednesday (203) and Thursday (203.25) highs. Look for a decisive move in IBM once 203 is taken out on the upside or 200 on the downside (on a closing basis).
After flirting with the 30 level, Microsoft (MSFT) staged a nice rally in an attempt to fill the gap at 31.61. However, it was turned back late in the day and closed over 31 (31.16) for the first time in five trading sessions. Since making a 52 week high at 32.95 and making another solid attempt at a new one post earnings, MSFT has been on the decline. Since 31.50 is smack dab in the middle of the recent high (32.95) and recent low (30.10) which coincides with Friday's high (31.54), that will be the level to focus on for the week.
General Electric (GE) is doing its best to hold 19. After dipping to 18.74 on Wednesday, GE recovered to close at 19.01 on Friday. Since early April 18.70-19.95 has been the trading range and as of late GE has been spending a lot more time near the bottom of the range. I am not sure there is anything to shake this issue out of its doldrums barring a major rally or sell off in the overall market.
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What a quiet week for Chevron Corporation (CVX) trading in a narrow 3 point range for the entire week. So is it consolidating to move higher or lower? If the double bottom from Thursday (102.65) and Friday (102.47) cannot hold early in Monday's session, the weekly low of 101.37 will surely be tested. After that, looms the recent low of the move at 100.51. To reverse the sell off from the all time high of 112.28, CVX needs to take out the weekly high of 104.24 and stay there.
AT&T (T) is the place you wanted to be, (at least for last week it was). Riding the coattails of an upgrade on Friday, T made another 52 week high in a down market. From the gap open over the former 52 week high of 33.33, T made an assault on the institutional sellers at 34.00. However, the HFT crowd thwarted the attempt, selling ahead of the monster orders at 34 in the high 33.80's before topping out at 33.92. From the close of 33.59 and up to 34.00, should be resistance until the HFT players are finished feasting on the size. On a pullback, expect only minor support at Friday's low and major support from 32.71-32.94.
Procter&Gamble (PG) shrugged off a Wells Fargo downgrade on Monday and spent some time in the 64 handle. Unfortunately, after peaking at 64.50 on Monday, PG fell back to settle at 63.68. PG, which has been unable to recover after its earnings miss, closed just above major support at 63.29. The next minor support levels for this issue would be the low for the year at 62.59 and 61.63, with major support at the late September low of 60.30. On the upside, PG needs to crack 64.50 for any chance to fill the gap from 65.26-66.63 following its disappointing earnings announcement.
Is it possible that a large fund or investor is trying to unload their Johnson&Johnson (JNJ) stake at 65. I think so, as all five highs for this week were from 64.86-65.02. Back in the old days, all you would have needed were a few sizable bids from 64 3/4 to 64 15/16 and that was that. Now that any sizable bid or offer gets sub-pennied (for 100 shares) and traded against, disposing of large positions has been much more difficult. Following a weak close on Friday at 64.34 after making a low at 64.23, JNJ will not find support until the mid-April lows from 63.20-63.36. Need I tell you where the major resistance is at?
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You heard it here first, both Warren Buffett and the company itself, Wells Fargo (WFC) are buying stock in and around the 32.50 level. In fact the last four times WFC has reached that level a rally followed shortly after. Even the JPM debacle could not carryover to WFC as it again rebounded off that level and traded straight up over a point. Now who can predict what will happen the fifth time it gets there, but be prepared for a major move one way or another. Since its positive earnings announcement WFC has traded between 32.43-34.30, and as of late has been challenging the lower end of this range. But support is support until it is breached and if 32.50 if taken out, that level could turn into major resistance.
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In closing, the June S&P 500 futures along with a majority of the top ten components are clinging to major support levels. If these levels hold, the correction is over and we can all breathe a sigh of relief. If not, batten down the hatches, as sell in May and go away may still be the play. Keep in mind, Thursday's and Friday's action in the futures as well as the individual issues discussed in this week's action will determine what level is next 1300 or 1400 for the June S&P 500 futures.
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