Big moves up and down in share prices need to be supported by increasing volume or the move will rarely be sustainable. One way to determine strong trends and get on board long upward or downward moves is to look at stocks that are trading a large amount of volume early on in the day, when compared with their average volume. This will help us set the best moves apart from the rest. (For background reading, see Volume Rate Of Change.)
Here are five stocks that were trading on very large volume by noon today. Let's take a closer look at one that has seen a large share price change as well.
|Company||Shares Traded*||% of Average Volume
|American Commercial Lines
|* Data as of 10:00 am EST September 30, 2008|
Crowning The King of Cash
JPMorgan Chase(NYSE:JPM) is touting its position of safety in the marketplace by claiming the No.1 spot among U.S. banks in terms of deposits. WaMu customer deposits, checking accounts and certificates of deposit have become the property of JPMorgan as of September 25, forming a depository bank with more than $2 trillion in assets. The news of JPMorgan's conquest over WaMu was only days ahead of Citigroup's announcement of its absorption of Wachovia Bank (NYSE:WB). The combined branches of WaMu and JPMorgan will give customers the option to visit more than 5,400 branches and have access to more than 14,000 ATMs in 23 states. The hyper activity in WaMu shares could be investors hoping to remove remaining shares from their portfolios.
What Happened to WaMu?
The financial Tsunami in the form of a slowing U.S. economy, a reversal of the housing boom, limited availability of credit and a rise in home foreclosures weighed heavily on WaMu's balance sheet. At the end of the second quarter of 2008 WaMu reported a net loss of $3.33 billion and an increase in loan loss reserves to $8.46 billion in preparation for an expected continuation of falling housing prices in the U.S. WaMu also reported more than $11 billion in non-performing assets tied largely to option ARM loans and its subprime mortgage channel. In the days leading up the merger announcement, rating agencies Standard & Poor's, Moody's and Fitch Ratings all lowered their bond ratings for the ailing depositor and mortgage loan provider. (To learn more, read What is a subprime mortgage? and The Fuel That Fed The Subprime Meltdown.)
What Happened to the $7 Billion Cash Infusion?
Earlier this year Private Equity firm Texas Pacific Group, who has successful teamed with other firms to complete huge deals like the $45 billion leveraged buyout of Texas Utilities and the $27 billion acquisition of Alltel Wireless, led a $7 billion cash infusion into WaMu. Former CEO Kerry Killinger hoped that the infusion of funds along with additional cost savings measures would be enough to keep WaMu solvent. With the transfer of WaMu assets to JPMorgan the private equity firm that is often on the winning side of a deal is reported to have lost $1.35 billion on the transaction.
Note to depositors. If you had more than $100,000 on deposit at each of the two formerly separate entities your deposits will continue to be secured separately for the next six months. After the six-month period normal FDIC insurance up to $100,000 per depositor will go into effect. (To learn more, see Are Your Bank Deposits Insured?)
What happens Next
The upswing in volume is unlikely to continue as the shares WaMu will cease to exist. After the announcement JPMorgan immediately moved to write down $30 billion in WaMu mortgages and it will begin working on capitalizing its new $900 billion in deposits. Unusual volatility that could lead to investment opportunities may exist with JPMorgan's stock. On September 26, shares of JP Morgan rose 9.91% on news of the announced acquisition only to fall 15% on September 29 as the government bailout plan was rejected by Congress.