Will Wall Street Lose the Venerable JP Morgan Name?

Perhaps the most exciting thing that happened today on Wall Street occurred after the market closed. Analysts had speculated about a possible combination earlier in the day when JP Morgan's CEO cancelled an appearance at an investor conference. After trading hours, the announcement came that Chase Manhattan (CMB) was involved in late stage discussions to acquire JP Morgan (JPM). Details of the possible combination have not been disclosed although an announcement is expected as early as tomorrow morning.

As we mentioned in last Wednesday's market wrap, JP Morgan has been trading higher on speculation that a merger price tag could easily exceed $200. The stock closed today at $184.25 after running up nearly $15 in late afternoon trading. The stock made two jumps today. The first occurred at 10:30 ET when JP Morgan CEO Sandy Warner cancelled a public appearance fueling speculation that he might be involved in merger discussions (talk about forward looking speculation!). The second bump came in the last hour of trading as news began to leak to traders that a deal might be imminent.

John Pierpoint Morgan was an American industrial icon at the turn of the century. The financier helped to build the United State's industrial base through his involvement in consolidating the nation's railroads and the creation of manufacturing behemoth General Electric.

JP Morgan's performance helped to drive the Dow Jones Industrial Average (DJIA) higher on the day. The DJIA advanced 37.74 points to close at 11,233.23. The Nasdaq Composite (COMPX), on weakness in the semiconductor issues, fell 46.84 points to close at 3849.51. On strong volume of nearly 1.6 billion shares, the Nasdaq was forced downward through two key resistance levels. The chart below illustrates a possible double-top formation and underscores the precarious technical situation in the tech-heavy Nasdaq.

In broader market action, the S&P 500 (SPX) moved 5.86 points lower to close at 1481.99. The smaller-cap Russell 2000 (RUT) edged down 1.19 points to close at 532.43.

Consolidation in the investment banking industry continued to second tier firms as Germanys' Dresdner Bank expressed interest in Wasserstein Perella & Co. Wasserstein is reportedly negotiating for a price higher than the $1.5 billion Dresdner is willing to pay. Wasserstein Perella is a privately held investment-banking firm that gained notoriety in the late 1980's and recently advised a host of larger clients including Philip Morris (MO) and Time Warner (TWX).

Oil stocks traded mostly flat today, despite October Crude Oil futures trading down over $1. On the heels of strong gains yesterday, oil concerns took a breather, as the outlook for oil prices remains bullish given the lack of additional worldwide production capacity and increasing global demand. However, alternative energy stocks, specifically fuel cell companies, gathered some momentum today as the prospect of continued high-energy costs would intensify the efforts of alternative energy companies to bring more efficient products to market.

This fledgling industry registered some strong gains on the back of Plug Power (PLUG) which advanced over $11 to close at $52.5 on huge volume of 5.5 million shares. Ballard Power (BLDP) surged ahead 10% or $6.25 to close at $116.13. Fuel cells convert hydrogen and oxygen into electric power using a chemical process. Their efficiency and low emissions make them an attractive source of energy in the future. Up until recently, the instability of the cells tended to result in explosions, which wouldn't have excited investors quite as much.

On the economic front, there were no reports today, but traders will be paying close attention to offerings later in the week. The big economic reports for August's data are due out on Thursday. Traders will be watching for the Retail Sales, August PPI numbers, and initial jobless claims to confirm the scenario that the economy is growing at a more healthy pace and that interest rates are more likely to decrease rather than increase in coming months. Given that August's run-up in the market seemed to fully value this scenario, any remaining investor response to positive economic data should be muted at best. Investors are now keyed to earnings warnings and that should set the tone for most of September.

Speaking of earnings, Oracle reports third quarter results on Thursday before the open. Zack's is expecting earnings of $0.13/share while the whisper number is $0.14/share. Oracle's top-line growth should drive the Nasdaq one way or the other Thursday.

Speaking of earnings warnings, a host of companies guided analysts down for the third quarter today. None of the "bad news" companies today was particularly large or representative of an especially sensitive industry. Nevertheless, I kind of got the feeling that any downward revisions from big name tech companies could really hurt the market this month, as there have been more sellers than buyers in recent sessions.

Best Buy (BBY) made news on the upside today as the company reported earnings that exceeded analyst expectations. BBY stock rose $4.75, or 7.3%, to close at $69.19. The news helped lift the retail sector today as investors had been nibbling on retail stocks most of the week. The retail sector has quietly been advancing, posting some strong gains for the month of September. However, the overall outlook on the sector remains a bit dour. A slowing economy and higher oil prices generally don't fare well for retail issues.

Nike (NKE) ran up today ahead of Thursday's earnings report. Analysts are expecting Nike to post a gain of $0.74/share. Nike rallied on pretty strong volume today, although after gapping up on the open, little profit was left for active traders.

All in all, a dicey market. Financials and oil stocks are establishing some leadership, but I won't be convinced the market is ready to rally until we see some participation across the board. Try to stay out of trouble this week.

Good luck and trade wisely.

Chris Pikul, CFA
Assistant Editor