Wednesday, April 15, 2009

We've been bidding 7.60 for a September ___ put, predicated on a rally to ____, a Hidden Pivot target. The option price looks about right, since it was trading for 9.70 when the stock peaked the other day at 379.10. Since my DJIA projection implies another rally leg for the market, we should continue to bid for the put.

The futures would need to pop to 948.60 this week to turn the daily chart bullish, but 918.00 would do the trick on the hourly. More immediately, in trading early Tuesday night, a minor rally with potential to around 896.00 was developing. However, it would take a little more than that -- specifically, a print at ____ -- to turn the lesser charts positive.

Before yesterday's moderate selloff, we were looking for the Indoos to complete a minor rally pattern to ____, a Hidden Pivot target. The target remains valid because the point 'C' of the pattern, 7751, is very much intact. Moreover, we might also infer that the finishing stroke to ____ is likely, since the midpoint resistance associated with that number, 8047, was demolished when the Dow shot up to 8113 on Monday

I don't want to get hung up on the bullish Goldman target at $143, since we had Monday's 131.27 high in the stock nailed within 53 cents. That could prove to be an important top -- not only for Goldman shares, but for the market as a whole -- and so we should respect that possibility.  Other technical factors hinting that the stock market is extremely vulnerable include very bullish sentiment readings and an historically low Rydex bull/bear ratio of 0.74.

Our option position is showing a theoretical profit of $1,180, but there is another $1070 of potential gains over the next two days if the stock ends the week at 115. The profit would even higher -- around $2680 -- with GS at $120. You can exit between now and Friday, but officially we'll close out the position just before the April calls expire. There is no reason to try and squeeze the last dime from this trade, but keep in mind that a haphazard exit could cost you $300 or more of otherwise easy gains. A well-managed exit implies exiting both sides of each calendar spread at the same time, about midway between the bid and offer.

No sooner do we crown Goldman Sachs our Bear Rally King than...THWUMP!...the stock gets socked with a $15 loss,  its worst day in recent memory. There were some lurid stories on the Web to help turn yesterday's selloff into a gang-bang, including one at SeekingAlpha.com that wondered aloud whether Goldman deserved to share in AIG's bailout booty if, as is rumored, Goldman made a ton of money shorting AIG stock before the insurance firm collapsed.                   While Goldman reported better-than-expected earnings of $1.8 billion for the first quarter, much of it attributed to trading in fixed-incomes, the firm threw cold water on revelers yesterday by calling the strong numbers unsustainable. A concurring opinion from Standard & Poor's, whose guesswork in recent years has made the CIA look positively oracular in comparison, helped ratchet up the selling when the ratings firm wrote: "Coupled with persistent weak economic conditions and capital markets turmoil, we believe it would be premature to conclude that a sustained turnaround" in Goldman's performance is under way.  Insanity Does a '180  Funny how investors couldn't get enough Goldman stock just a day earlier. They goosed it up $7 in just a few hours, capping a $30 surge that had begun from $100 a week earlier. After Monday's close we were expecting the stock to go even higher in the days ahead, to at least $143. Now, even under the best of circumstances, it's going to take longer than we might have predicted. So what might that portend for the broad averages? We think it will slow their ascent, although we doubt that the bear rally that has pushed the Dow up by more than 1,600 points since early March is ready to die. More likely is that stocks will recoup yesterday's moderate