Goldman Sachs Impresses with a Sharp Rally

Mar 18, 2008: 12:19 PM CST

Unless the Fed Cut shocks markets to the downside, Goldman Sachs (GS) will post an incredible rally today. Yesterday, the stock traded as low as $140, and today, we’ve reached intraday highs of $171. Let’s look:

Earnings today beat estimates. Analysts expected a profit of $2.58 per share, but were surprised with reports that Goldman reported $3.23 per share profit. When a company beats earnings by that much, gaps of this magnitude are relatively common.

I did want to point out two previous positive momentum divergences on the daily chart, which served to shock the shorts and create a temporary rally (divergences are often resolved by a simple counter-swing move, rather than a trend reversal).

Price breached the key $20 period moving average. Remember how I said that this week would be news driven, rather than technical analysis driven. The Federal Reserve still has to release its decision (as of 1:15 EST as I write this post) and don’t forget that the end of this week signals the volatile and unpredictable “Triple Witching.”

Nevertheless, not to be outdone, Lehman Brothers (LEH) also showed an impressive and stellar reversal, doubling off yesterday’s $20 intraday low:

The Financial Sector as a whole has been battered the last few months, and so percentage increases will likely occur more here than in other sectors. Those funds who are short are forced to cover rapidly, as bottom fishers are throwing their lines out in droves, snagging up ‘cheap’ shares of companies who they feel will not return to those levels any time soon. Time will tell, of course.

Here’s a peek at the rest of the AMEX Sector SPDRs intraday prior to the Fed Cut Announcement:

(UPDATE: The Fed cut rates .75 bps)

Be sure to keep an eye on the Financial Sector, as it tends to lead the market. I’ll wait to analyze these developments further until after the close… and preferably this weekend.

5 Comments

5 Responses to “Goldman Sachs Impresses with a Sharp Rally”

  1. federal reserve Says:

    […] Not much to say about today??s Ten Post Round-Up except there??s something abosirenschronicles.comGoldman Sachs Impresses with a Sharp Rally Unless the Fed Cut shocks markets to the downside, Goldman Sachs GS will post an incredible rally […]

  2. dgs8502 Says:

    I use Stockchart.com for research occasionally, but I can not find the “momentum indicator” used today in the Goldman Sachs chart and often featured in your post.

    Is this available only for paid subscriptions or am I just missing it?

    Kudos! I have been trading for almost 10 years and just discovered your site a few months ago. Your post are pertinent, insightful, and applicable in the real world, a must read every day.

    Thanks,
    Donald

  3. NTH Says:

    Hi again Corey,

    > Be sure to keep an eye on the Financial Sector, as it tends to lead the market.

    Traditionally, the Tech sector has led the market, which makes sense as it is ‘the future’. The Financial sector should in theory (and in the long-term) be the average of all other sectors as it finances them all and hence should be a follower, not a market indicator. However, the current crises is still being “discovered” and “worked out” as we go along. eg: No-one on the planet predicted last week that Bear Stearns would be sold for 2 dollars a share and have its funding backed by the US government, not even the Fed or JP Morgan knew this! Note that the mistakes were made back in 2002, 2003, 2004, etc and are coming home to roost now.

    In this tetchy market, everything is news driven, and there is a lot of relevant news (ie: shocking news) coming from the financial sector, so you are right in that people have to watch the Financial sector closely, even if not trading it. Markets are moving on rumour, some with basis, some with none. This market is like a rabbit in the headlights and doesnt know which way to turn next. Expect anything! Assess risk and add a pinch extra.

    Its amazing how Goldman has avoided any major problems, and if anything, has benefitted from the financial malaise, perhaps on the right side of many deals.

    In terms of your other post on BSC rising from 2 dollars to 8 bucks, I dont understand this and perhaps I am missing something. I had thought that JP Morgan had acquired this company at 2 dollars a share. It was a done deal, right? So any movements in the BSC share price should match movements in the JP Morgan Chase share price, one-for-one. So, why pay 8 bucks for BSC? Is it madness or am I missing something fundamental.

    Good luck in these choppy markets,

    NTH

  4. Corey Rosenbloom Says:

    NTH,

    I almost included the the Tech sector in the discussion above, in saying that Tech & Financials lead the market but decided to keep the post focused on a signular topic. Different market themes can lead the market at different times (interest rates, oil, commodities, credit, tech, Yen, carry trade, etc) and the important thing is to discern what’s shifting to leadership. Analysts have speculated that when the financials bottom (meaning the ‘crisis’ is coming to an end), then that would potentially be a sign of a decent market bottom. We’ll wait to see what happens there.

    I agree with the “assess risk and add extra” comment. That’s the way I’ve been trading over the last two months. I’ve focused much more on risk controls and smaller positions and have held up decently. I couldn’t have done as well as if I traded like I did at the middle to end of 2007.

    I agree about Goldman as well. That stock has held up nicely.

    Also, I’m with you on the BSC $2 price ‘conundrum.’ The headline read that investors are demanding more for the stock and are trying to force it up beyond $2 to force JPMC to acquire at a higher price. Investors are also filing lawsuits to allow more competitive bidding (which would raise the price) and the legal aspects could cause this to drive on further and may actually block the $2 per share buy-out. We’ll see.

    Good luck to you as well! Risk control may have more to do with it than luck, though 🙂

  5. Corey Rosenbloom Says:

    DGS,

    Ahhh it’s a secret indicator! Just kidding.

    It’s actually the standard MACD indicator that has been tweaked to be the difference in a 3 and 10 period EMA, which then is smoothed by a 16 period lookback.

    In the three boxes of the MACD, insert 3, 10, 16 in that order and that will give you the 3/10 Oscillator. It’s a valuable oscillator that is a trend indicator and a momentum (and divergence) indicator.