Hey, don’t get me wrong, I was actually looking forward to doing that grass-skirted hula dance in lower Manhattan – the one that emergency surgery postponed last winter. But at the rate this cinder block has been falling, it may yet deny me the opportunity, since my hula pledge would be negated by a drop below $30. That doesn’t seem to be in the cards at the moment, since Goldman shares bounced yesterday from within inches of the Hidden Pivot midpoint support shown in the chart . The bad news — bad for Goldman and its shareholders, that is — is that the fairly precise midpoint bounce has corroborated its ‘D’ target of minus 9.69 (!). Now, we know that can’t happen, of course, but let me remind you that negative targets came up for Lehmann, Bear Stearns and Fannie Mae in the infamous forecast that I sent out several years ago, just ahead of the bank stocks’ capitulation.
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Goldman Sachs
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A friend of mine is a top trading system developer. I asked him for his thoughts on high-speed trading, and he responded as follows:
“Without really diving into the entire issue with both feet, my random comments would not do justice to this topic. I write code, not books, as you know. I might say that Goldman Sachs (GS) is not the only player in the box. If Sergey Aleynikov [a former Goldman employee accused of stealing trading software] could get code out of Goldman, there are probably others. I’d hate to be on the (GS) receiving end of a really dedicated counter-predatory ‘market harvester.’ I doubt that the markets will become the war zone with collateral damage with the magnitude that [some believe]. [Hedge fund] LTCM had Nobel laureates on board and they blew up.
“High frequency trading (HFT) is the most profitable category on Wall Street right now, however. News is still moving the markets, and machine-readable news can be hooked up to algos. By the way: GS does not have our algo unless they are stealing patents. We make this algo [commercially] available to ALL traders, and we are not alone. Circuit breakers will probably increase in use and regulation will probably increase.
“Regulators are not real happy with GS, in my humble opinion. The Bloomberg-tapping trader in Bermuda shorts trading FOREX is simply being replaced by the shorts-wearing FOREX trader running his own personal algo. More sudden market moves have happened due to fat-fingered errors than algos. The leverage unwind set upon us by us helping people get into houses that they could not afford has hurt us more than GS’s algos. We can do much by voting in leaders that have common sense. Who really wanted to ‘Equalize Housing’ in an unequal world?
“My advice: Work hard, act smart, be careful and if in doubt…stand aside. Merton-1936 Law of Unintended Consequences #1 reason….Ignorance. #2 reason: Error. Nothing has changed, we just have ‘evolved.’ Back to the GP code now….”
Goldman’s plunge tore through a major midpoint support without evincing even a hint of a bounce. I now expect the stock to fall to at least 145.23, possibly pausing at 147.80, the midpoint sibling of the target. _______ UPDATE (12:54 p.m. EDT): Goldman’s overnight low was 147.81 – tradable, perhaps, since it occurred just an hour before the NYSE opening.
I’d flagged a midpoint support at 152.80 as a place to try and get long, but you should do so only via “camouflage,” buying on the first ABC uptrend that occurs on the very lesser charts after 152.80 is approached within 5-10 cents.
It’s been a while since we looked in on this stock, which appears headed for 164.05, an important Hidden Pivot off the daily chart. Traders should look to do their buying using camouflage on a small abc reversal uptrend from near 152.80, the midpoint of the relevant C-D leg.
We haven’t done anything in Goldman in a while, but a moderate rally today could provide a good opportunity to get short with a tight stop-loss. Officially we’ll offer 200 shares at 136.83, stop 137.01, but if you want to use puts instead, try the August 125s. You should pay no more than 2.80 for them, however, and the stop-loss will still apply. _______ UPDATE (11:11 a.m. EDT): A short from 136.92 was stopped out minutes after entry for a tiny trading loss, although one could have partially covered the trade as low as 136.51. That’s how low GS dipped initially after opening on a $1+ gap. The actual high was 137.17, implying that higher highs lie ahead, but for now the stock has relapsed to a so-far low of 134.76. While it may seem as though our stop-loss was too tight, the pattern was sufficiently precise to justify the one we used.
We talked of shorting Goldman for a possible ride down to 122.25, and this rally might provide a good opportunity to do it. It projects to 138.71, so let’s offer 200 shares short at 138.65, stop 138.95, day order. You can substitute options, but the stop-loss will still apply. ______ UPDATE: Before diving $1.50, Goldman topped at 138.26 — not quite high enough to get us short. Cancel the trade, but keep in mind that the very bearish target remains in force if you want to take the initiative.
It’s been a while since we pondered this limping lump of brick dust, but it’s not a happy sign for bulls that the stock has slipped so easily beneath the Hidden Pivot support shown in the chart. What it suggests is that Goldman will fall anew, this time to Hidden Pivot support at 122.25. Camouflage shorts are encouraged from these levels, but if you’ve got the patience to wait, bottom-fishing at 122.25 could provide the kind of low-risk opportunity that we thrive on.
Dot-Com Bust II Looms on the Horizon
by Rick Ackerman on July 5, 2011 12:01 am GMT · 10 comments
Share valuations ahead of Dot-Com Bust II have been crazy-stupid, demonstrating yet again, to borrow Mencken’s line, that no firm in the IPO business will ever go broke underestimating the intelligence of the American investor. Witness the huge markups paid last May for IPO shares of the still profit-less LinkedIn, a company that purports to network business contacts between individual users. Instead, and as far as we can surmise, LinkedIn has grown its subscriber base using viral techniques, mailing out link “requests” to people like your editor, who thus far has failed to throttle such e-mails. The result is that, although LinkedIn has collected a zillion names, e-mail addresses and personal data from registrants, the registrants themselves are only tenuously tied, a vast nervous system unconnected to a brain. Of course, this didn’t stop investors from trampling each other to pay ridiculous prices for LNKD stock when the company went public last May. Shares expected to fetch around $35 soared to $122.70 on opening day and currently trade for around $94. This is notwithstanding the fact that LinkedIn, like Facebook, has yet to develop a revenue model even remotely capable of vindicating the outlandish multiples speculators seem willing to pay for an equity stake. » Read the full article