This week’s Wrap Up presents a long and intermediate term look at important financial institutions. For a couple of these institutions, business is good; in fact it has not been as good since the top of the Nasdaq bubble. Others are in a trading range.
American Express (AXP)
The long-term monthly chart of American Express shows that it is now threatening its previous spring of 2000 high.
Over the last year, AXP has been in a fairly consistent linear uptrend. As with several of these stocks, something happened in October of 2005 to momentarily break the linear uptrends, and then the trends were saved. Now, the linear uptrend deserves the benefit of the doubt. Quarterly earnings are due out in about a month.
Lehman Brothers (LEH)
The long-term chart of Lehman Brothers scares me a bit. Note the long-term Elliott Wave labeling.
Note the potential 5-wave up wave. It follows a typical 5-wave advance in that the corrective waves 2 and 4 alternate in character. Also, advancing waves 1 and 3 are about equal in magnitude, suggesting that wave 5 is likely to extend. There is nothing to refute this long term potential prognosis in the shorter term yearly chart, except a loss of short term momentum. Regardless, the linear uptrend deserves the benefit of the doubt until proven wrong by the price action itself.
Citigroup has been attempting to better its Spring of 2000 high since early 2004, and thus far has failed.
The one-year daily chart suggests it will fail once again. Good quarterly earnings reports by Goldman Sachs failed to lift Citigroup significantly.
Short-term Citigroup looks vulnerable with 47.2 being a key technical level.
Goldman Sachs (GS)
Goldman Sachs has decisively surpassed its 2000 bubble high. Business has not been this good for them since the days of the practically worthless overleveraged investment trusts of 1929. In those days a lot of people lost a lot of money in these “trusts”…but not Goldman Sachs. For more on this see this link, or this reference.
Shorter term, the stock is in a linear uptrend. It is premature to suggest a loss of momentum. The key technical question would be whether the gap of Tuesday is a common gap (most likely), a breakaway (less likely), or exhaustion gap. Merrill Lynch is behaving similar to Goldman Sachs.
JP Morgan Chase & Co. (JPM)
JP Morgan Chase and company appears to be the laggard of the group. Although JPM has rallied with the sector, unlike Goldman Sachs and Merrill Lynch, it has not come close to its technology bubble high.
JP Morgan Chase’ one-year daily chart is bullish, but the stock has lost short term momentum.
Short term, the stock is struggling and key technical support and resistance lines are shown.
Below is a table that outlines bullish percents of various important sectors and indices at the present time. The following is from the www.stockcharts.com website:
“The Bullish Percent Index (BPI) is a popular market breadth indicator that is calculated by dividing the number of stocks in a given group (an exchange, an industry, etc.) that are currently trading with Point and Figure buy signals, by the total number of stocks in that group. Bullish Percent levels that are above 70% are considered overbought, whereas levels below 30% are considered oversold. Strong buy signals occur when the Bullish Percent Index falls below 30% and then reverses up by at least 6%. Conversely, promising sell signals occur when it goes above 70%, and then reverses down by at least 6%.”
Of all the sectors in the table, they all are indicating a bearish divergence in that the indices are making higher highs, yet the percent of “participants” boosting the index to new highs are much lower than what occurred in the previous peak. Notable divergences consist of the S&P energy sector where only 41% of the stocks are bullish, down from a previous peak of 96 percent. Also conspicuous is the Nasdaq 100 where only 58 percent of the stocks are bullish while the index is making multi-year highs. Something smells pretty bad here, and yet it is too early to jump the gun with bearish positions in my view. There are parallels between today’s market and the one of 1999, where there was an extended period of time with market internals crumbling while the indices advanced.
The homebuilders are rallying concurrent with a sharp rally in the bond market, and they are probably setting up for a great time to sell. Here’s the 3-year weekly chart. It looks as if we have seen a top in this index. Those homebuilders that concentrate in the west seem the weakest (ref. Lyon Homes WLS, Centex CTX, and Standard Pacific (SPF).
The rise in the 10-year note yield could have been a gigantic whipsaw. The economic data indicated no inflation while gold rose today.
The fed indicated a few weeks ago that interest rates would be based on economic data; so it is clear to me that the fed is telegraphing their intentions through the “data.” This all smells like fish to me.
That said, one cannot rule out the possibility that this bull market will not end in one final flourish. Remember the Nasdaq in March of 2000? Preserve your capital.
Have a great evening.
James J. Puplava Financial Sense™ is a Registered Trademark
P. O. Box 503147 San Diego, CA 92150-3147 USA 858.487.3939