A Potential Pothole on Rally Road

The spokesman said he was not aware of any customers seeking alternatives to J.P. Morgan's derivatives desk, or leaving altogether, as has been reported elsewhere.

Indeed, with assets of $741 billion and shareholder equity exceeding $40 billion at the end of the second quarter, there appears to be no imminent threat to the firm's financial wherewithal. Moody's said Wednesday that J.P. Morgan's liquidity "remains strong," and its risk-weighted capital ratios are good. After declining over 56% year to date previously, J.P. Morgan's shares rose 3.2% Thursday and were up another 7.7% Friday afternoon.

Still, many on Wall Street fret that time, and the markets, are not on J.P. Morgan's side.

Stressed Out

Hamzei, who runs a quantitative analytics firm, is mainly focused on issues such as on-balance volume. That measure of whether a stock is under accumulation or distribution shows "money has exited [J.P. Morgan's] stock at a horrendous rate," he said.

But he also cited the "extreme levels at which the global debt and equity securities and derivatives are currently trading," which have been and presumably continue to put stress on J.P. Morgan's proprietary trading and derivatives portfolios.

Prior to Thursday's advance, yields on investment-grade corporate bonds were at their widest spread to Treasuries in a decade, while the S&P Speculative Grade Index, which mirrors the trend in spreads between high-yield bonds and Treasuries, hit an all-time high of 1573.9 on Thursday. S&P's Investment Grade Credit Index also hit a record high on Thursday. Corporate default rates are up markedly this year and Fitch Investors reported 40% of junk bonds issued from 1997 to 1999 are now in default. (RealMoneyPro.com's Brian Reynolds observed that corporate spreads were "narrowing significantly" Friday morning, which would be welcome news for the corporate bond market and J.P. Morgan in particular if it continues.)