Terrible timing for bad news hitting the market today with the announcement of fraud charges being filed against Goldman Sachs. The market was just starting to appear safe to many investors with a weekly close above 1200 on the SPX clearly in sight. People were being told that investing in stocks was acceptable again, and they were beginning to believe those words and then BAM...
Then the SEC drops the bombshell this morning, and rightfully so, that Goldman Sachs deceived investors when creating and selling CDOs.
Once again, the contrarian investor could have been tipped off by the most common sell signal: The major cover story for a business magazine. In this case, BusinessWeek in their April 12th issue printed a cover story about how Goldman Executives claim that they didn't sell America short. People had questioned the validity of Goldman's profits while the other banks were hemorrhaging money, but few could put a finger on any true wrong doing.
The news of this civil lawsuit will linger over the weekend, and most expect that the reaction to this news Monday morning from markets around the world will not look good. Continue to watch the VIX 15 minute chart as your clue to if or when the selling stops. This VIX rally is similar to what we saw in late January, where swift selling pressure took the markets down for a few days before the bull trend kicked back into gear. The follow through on Monday will be the key to determining where this market is headed over the coming weeks.
Finally, from an options perspective, the Goldman Sachs (GS) trade today is a very interesting one, because of the fact that this news hit on expiration Friday. Many people were short Goldman puts, in particular the the April 160s and 165s. It's not clear whether they were naked short these options or if they had some protection, but regardless, they sold them with the expectation that they would expire worthless today. The news obviously turned this trade upside-down, so don't be surprised if GS gets pinned at the close today around an options strike of 155 or 160.
Then the SEC drops the bombshell this morning, and rightfully so, that Goldman Sachs deceived investors when creating and selling CDOs.
Once again, the contrarian investor could have been tipped off by the most common sell signal: The major cover story for a business magazine. In this case, BusinessWeek in their April 12th issue printed a cover story about how Goldman Executives claim that they didn't sell America short. People had questioned the validity of Goldman's profits while the other banks were hemorrhaging money, but few could put a finger on any true wrong doing.
The news of this civil lawsuit will linger over the weekend, and most expect that the reaction to this news Monday morning from markets around the world will not look good. Continue to watch the VIX 15 minute chart as your clue to if or when the selling stops. This VIX rally is similar to what we saw in late January, where swift selling pressure took the markets down for a few days before the bull trend kicked back into gear. The follow through on Monday will be the key to determining where this market is headed over the coming weeks.
Finally, from an options perspective, the Goldman Sachs (GS) trade today is a very interesting one, because of the fact that this news hit on expiration Friday. Many people were short Goldman puts, in particular the the April 160s and 165s. It's not clear whether they were naked short these options or if they had some protection, but regardless, they sold them with the expectation that they would expire worthless today. The news obviously turned this trade upside-down, so don't be surprised if GS gets pinned at the close today around an options strike of 155 or 160.
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