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The S&P 500 has remained trapped in a trading range, albeit volatile. The recent market movement and reports such as the BofA Sell Side Indicator being most bullish in 15 years are not enough to determine if the June lows were in fact a bottom suggesting a July rally is due, or whether the pullback since April has still got steam. For the next couple of weeks at least, S&P 500 looks bullish since it passed the recent high of 1363.

While the S&P 500 is trying to crawl back from its beatings since May, the financial sector is still trying to dodge curve balls coming from almost all directions.

First, there has been this Europe mess where its leaders have held almost 19 meetings over the past years without a comprehensive solution. Their 120 billion euro ($150B) stimulus was 10 billion euros less than the previously discussed amount. Then in the U.S., JPMorgan Chase & Co. (NYSE:JPM) announced a huge proprietary loss of about $2 billion, which is already rumored to be above $5 billion in the markets - in fact a NY Times report said it could be as high as $9 billion. Only the earnings will tell the real numbers.

Then, the CEO of Barclays (NYSE:BCS) in the U.K. had to be ousted because of an alleged Libor rate rigging scandal. And finally, Meredith Whitney downgrades JPM.

Who is Meredith Whitney?

Meredith Whitney is the wizard who first predicted the subprime mortgage crisis! In October of 2007, she published a report about Citigroup (NYSE:C), claiming that the bank was far too leveraged. She had said that Citigroup will face huge writedowns and will have to cut its dividend. And we all know what happened.

Meredith's downgrade was, I thought, supposed to be the ultimate punch in the gut for JPM.

But the barrage of curve balls was not over. At least not for JPM. A very recent report stated that JPMorgan is being probed over possible energy market manipulation. What I found interesting was the timing of Meredith's downgrade with this report. Back to back days.

Now I am no conspiracy theorist, and there is no need to speculate that Meredith Whitney's advisory group suspects a bigger problem coming out of the probe for JPM or that JPM's Jamie Dimon will face troubles similar to Barclays' Bob Diamond. But I do know one thing - there cannot be smoke without any fire.

What should investors do?

Recently there was a report on China that stated that most economic data coming out of the region was manipulated. The market brushed aside this report and marched ahead. It is possible that this time, the market will do the same thing. Good banks in the financial sector that are not involved in any controversy could even outperform.

Why?

Firstly, Meredith Whitney has not always been correct. She wrote a report prophesying the collapse of municipal bonds, which never happened. Secondly, Meredith's 12 month target price of $45 is still above JPM's current stock price. Remember, Barclays collapsed 12% on Thursday but it has shot back up 10% since then. JPM at $36 or even at $40 seems quite undervalued unless of course, it has hidden skeletons in its closet that are yet to come out.

There is no need to panic, and there is no need to sell JPM or short XLF for that matter. JPM's stock at $36 is, at worst, a Hold. There might be seasonal volatility during the July- end September timeframe, and concerned investors can look into protective option strategies to tackle that.

But since there cannot be any smoke without fire, investors should remain cognizant of any news around this most recent probe in particular, and JPM in general. Hopefully, the fire is easily manageable for this too-big-to-fail (you have to admit it) bank.

Keep your eyes, ears and mind open; unless and until you hear news about Jamie Dimon getting summoned by the U.S. government like Japan's Toyoda (or is it Toyota?) was unfortunately treated, chances of which are very remote, repeat after me and relax: "Om".

Source: JPMorgan And The Curse Of Meredith Whitney