We hold a tiny position in Goldman Sachs (GS) right now that’s doing fine despite the stock’s exceptionally violent swings.  In fact, if the underlying shares are trading at or near $115 when the April options expire in 23 days, our paper gain from two measly calendar spreads and a naked-short “kicker” could approach $1900.  Nor can we get dinged for more than pocket change as long as the stock, which settled yesterday at 110.23, is trading anywhere between zero and $130 when the April options die.  The even greater value of this trade, however, is that it has caused us to focus relentlessly on a stock that can tell us precisely what’s on Wall Street’s mind.  To judge from yesterday’s action, we must warn bears:  The rampage isn’t over.

A Wicked Little Monster

How do we “know” this?  Simply because the spectacular short-squeeze of the last two days exceeded our rally target by a relative mile.  While we’d been looking a run-up to exactly 112.31, Goldman demolished it yesterday and kept going to 115.65 before receding with the tide.  Shorts may have breathed a sigh of relief on the $5 pullback that followed, but they had better not take their eye off  this wicked little monster, because it’s bound to come after them again. It would be a rarity indeed if Goldman shares were to die in the stretch after having run the fastest seven furlongs since Secretariat in the ’73 Derby. We can’t predict exactly when GS will get second wind, but it’s not necessary to possess a crystal ball, since we need only look for impulsive rallies on the three-minute chart to tell us when and how to react.  Most immediately, based on yesterday’s close, a thrust touching 112.49 would do the trick, and shorts had better scramble if it happens.

We view Goldman as the stockmarket bellwether right now, since it has been responding to mildly upbeat economic news as though it fervently believes every last word of it.  We don’t begrudge Mr. Obama his optimism, nor do we blame him for spinning the news in any way he evidently believes is constructive.  But we doubt that gaseous, feel-good news alone can continue to power the stock-market higher, especially when it is weighed each day against the mundane reality of underwater home values, steeply rising joblessness, waves of bankruptcies, and the bleak prospect of a U.S. economy trying to recover without a go-go banking sector to foster the perhaps crucial illusion of recovery itself.  (If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)