JPMorgan: It's a Lousy Time to Be a Bank

Bank stocks have not been a great investment of late. Not even the most value-oriented of all value managers wants to make a case for owning these stocks, especially after they thought they were a value in April and July and on their way to becoming a ridiculous value.

Among the carnage that has become the banking sector, a few banks have emerged as the sacred cows -- ones the government has chosen as the survivors, those worthy of continuing to exist with the full backing of our taxpayer dollars.

Two of the chosen ones were companies that avoided much of the industry's mistakes: JPMorgan (JPM - commentary - Cramer's Take) and Wells Fargo (WFC - commentary - Cramer's Take). They avoided large exposure to the credit default swap market and subprime loans, while managing their leverage more effectively.

If anyone is worthy of being saved, a case could be made for these two. Jamie Dimon, the CEO at JPMorgan has reached star status for his genius in avoiding many of the problems impacting his peers. However, it's not quite as simple as we were led to believe.

JPMorgan has taken over Washington Mutual (WM - commentary - Cramer's Take) and Bear Stearns in the past 10 months. That's a lot for any company to bite off, even if the prices paid were bargain-basement . JPMorgan still has to integrate these businesses, deal with their problems and figure out how to move forward.

But with the economy weak and a fear of lending, it's a lousy time to be in the banking business. The challenges JPMorgan would face in a better financial position are now amplified and, no matter how good the management team is, business cycle and integration factors are unavoidable. The stock price is beginning to reflect that even JPMorgan has a tough road ahead of it.

JPMorgan

The price action of JPMorgan has, until recently, managed to avoid any distributive price action. This is changing and the stock is showing signs of more substantial selling pressure than the normal reaction to headline news. The break at the $35 level in late November completed a major topping formation that puts in place major resistance in the $35-$45 range. That decline occurred on increasing volume, suggesting strong selling.

Since the November low, the stock has bounced back, but has failed to penetrate above $35 with any staying power. This rally has been on lighter volume, a sign of weak demand. The current configuration continues a downtrend and indicates that lower prices are likely. We would short JPMorgan at current levels or on strength to the $35 area, looking for a move down to the low $20s. Stop out short positions on strength above $37.

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Know what you own: Other money center banks include Citigroup (C - commentary - Cramer's Take), Bank of America (BAC - commentary - Cramer's Take), Royal Bank of Canada (RY - commentary - Cramer's Take) and The Bank of New York Mellon (BK - commentary - Cramer's Take). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.