August 14th, 2008

Last Shoes to Drop: GS and JPM

I mentioned below what looks to me like a precarious chart for GS (Goldman Sachs) and JPM (JPMorgan). Granted, their charts don’t look anything as bad as those of LEH, MER, WB, BAC or any of a several others. However, if you were to rewind the charts of any of wounded banks backwards several months, the tops they formed around the beginning of 2007 looks not dissimilar to the tops that GS and JPM have completed.

  • GS (Goldman Sachs): It’s taken nearly two years but GS appears to be at the end of forming a major top. I call it a “double top” but, whatever name you give it, it looks ominous. Recent downgrades don’t help those who piled on to GS as a financial industry safe haven while all the other banks were tanking. Will that whole herd now abandon GS like they did the other financials? Where will that money flow to next? By traditional guidelines, a move down leg from here would be approximately 30% to 120, the same percentage between the peak of 240 and the neckline of 170.

  • JPM (JPMorgan Chase): The chart presents a much more complex and confusing picture. For some reason that I can’t explain, JPM seems to have started struggling and forming a top all the way back in 2003. It may weather its own extended storm (its stock is now higher than it was in 2003 but it’s not lower either) and the past five years may turn out to be a base for future sustained growth. At the moment, however, I’ll assume that the stock price movement represents an extended top formation.

    I inserted two alternative necklines because, honestly, I can’t tell which might ultimately will pervade. If the stock continues moving down, replicating the move from peak to neckline would result in a decline from 35-45% to the 15-20 area.

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