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 closeâ€¦ and preferably this weekend.