How Low Could GS Go?

The Vampire Squid will meet the bigger Vampire Squid (the US government) tomorrow in the Senate subcommittee hearing over its Abacus CDO transaction, and the shares of the first Squid, aka Goldman Sachs (GS) have been suffering ever since April 16, when the SEC charges were leaked to New York Times.

It was pushing to retake the recent high on April 16, then the leak hit. The stock ended the day 13% lower. Since then, it continues to fall, despite daily attempts to reverse.

So, technically, where is the stock at?

This is the 3-year weekly chart of GS. To my surprise, it stopped today at where one may expect it to stop: trendline from March 2009 low. It is still just outside the price band where there were a lot of buying (and selling) activities. Technical indicators (RSI, MACD, Slow stochs) are down, but for now they haven't broken down the support.


The February 2010 low and June-July 2009 low are yet to be broken, and that level ($150) should offer some support. Below that, 61.8% Fibonacci retracement level ($137) from March 09 low to October 09 high.

If that breaks, maybe Blankfein should consider taking Goldman private.

Silicon Valley vs the Rest of the US

Or tech vs traditional. Or companies that continue to innovate vs companies that don't. I don't know how exactly to define it, but take a look at the comparison charts below. (They are 5-year charts.)


The first four are the tech companies, three in the Valley, one up in Washington. Netflix (NFLX) broke to all-time high today. Intuitive Surgical (ISRG), Apple (AAPL), and Amazon (AMZN) continue to break out from the high. Their charts say it all: Recession? What recession? Also notice that, except for ISRG, their recent bottom was NOT March 2009. They bottomed sooner than the rest of the market, and off to the races ever since...

Compare them to the rest. First two of "the rest" are tech companies, Google (GOOG) and Microsoft (MSFT). Even though they have recovered from their lows, they don't compare at all with the first four. (That tells me, unfortunately, GOOG has already become MSFT...) Rather, they resemble big, traditional businesses that are listed in New York Stock Exchange, rather than on Nasdaq. Their charts look more like J.P. Morgan Chase (JPM) or Coca Cola (KO). The last one is Freeport McMoran (FCX), a copper and gold company. Although it has recovered a lot, it is still far from recapturing the all-time high.

They (NFLX, ISRG, AAPL, AMZN, etc) are clearly in a bull market, disregarding the rest. In a bull market, you buy a breakout from the high. That's what I learned in the book by William O'Neil (How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition).

I am not advocating anything, going long or short, here. Do your own DD, but I sure wish I bought every single breakout from the high for these stocks.

GS Trade

I bought a small number of way-out-of-money Goldman Sachs May calls (strike at $185, the price as of last Thursday, BTW) for a trade. I bought them at 70 cents, and they ended at $1.18.

GS recovered after the news came that the SEC's vote to sue Goldman was 3-2, strictly party-lines.

Tomorrow is their earnings report before the market opens. Probably I should have sold, given the uncertainty.

We'll see soon enough...

And GS Outdid Them All..

Goldman Sachs' (GS) April put options, that is. It must be the theme of the past two weeks: an option that was a penny or two a piece one day jumped 1200% (Citi's $5 call, from 1 cent to 13 cents), 6400% (Palm's $5 call, 2 cents to $1.30), and today, boy I can't even calculate. Goldman Sachs' April $175 call went from 1 cent to $19 dollars, courtesy of SEC.

It was a rather quiet morning on an Op-Ex day. The market started out slightly down, and was climbing into a positive territory - another miracle up-day, I thought, when all of a sudden the @#$% hit the fan. It seems to have started at 10:36 AM EST.

This is the Dow intraday chart:

This is the intraday chart of GS:

This is the intraday chart of GS April $175 put option. Someone bought a huge chunk at 10:36 AM, and unload quickly, and probably bought again. Rinse and repeat. The option went as high as $19:

This is the intraday chart of GS April $175 call option. It was solidly in the money, until all of a sudden it collapsed. Call option sellers must have been ecstatic. This particular option was worth $25 in October 2009. Today it opened at $8.74, and ended worthless:

But this GS put option play doesn't qualify as "shoulda, coulda" trade for me, because I didn't even think about putting GS yesterday or even this morning. I had no idea that SEC would come out today, on an Op-Ex day, to file civil charge against, of all people, Goldman Sachs for defrauding the investors with the CDO it crafted with the hedge fund manager John Paulson.

What I saw first was a big, big red candle on the Dow intraday chart, around 10:38 AM. I had no idea what was going on. When I finally got the news 10 minutes later, GS was already down to $170, from $182. $175 put option had already gone from 1 cent to over $11.

But some people made a filthy amount of money in a few short minutes. There are rumors that Goldman Sachs traders were shorting their own stock as well as index futures before the news broke. They don't trade, those Wall Street bankers. They simply profit from prior knowledge and insider information. The playing field is not only NOT level, but there is NO playing field. IMHO, that is. Not based on evidence, or anything else but a hunch. Henry Blodget at Yahoo Tech Ticker/The Business Insider seems to agree with me on that..

Shoulda, Coulda: Citi, Again!

It's bad enough having missed one big opportunity in PALM. I have another one, my old favorite Citigroup (C).

I sold the shares at $4.25-ish average long time ago, and since then I was just watching, until about a month ago when I put the proceeds from selling XLF calls into C's calls. XLF March $15 calls unexpectedly went into money, and at that time C was trading between $4.20 and $4.40. I bought April $5 calls at 5 cents a piece.

Then the option went nowhere, as C lost momentum. Beginning of April, as the Op-Ex day was 2 weeks away, the option became basically worthless, a penny. No way in hell that C could go anywhere near the strike price. I left them for dead. (sound familiar?)

Then I happened to take a look at it two days ago after C made it above $4.60. The option was still 1 cents. PALM was still heavy on my mind, but C? How could this go any higher with no news? Nonetheless I called up the screen, and flirted with the idea of buying 1000 calls at 1 cents. It would cost $1000 to buy them. And probably I would lose it all when they expire on April 17.

So I didn't buy. (sounding more and more familiar.)

Then, JPM (J.P.Morgan Chase) struck this morning. (It was my carelessness - I thought major banks report next week and didn't check the exact dates.) And C went flying. 1-cent call option ended at 7 cents. After-hours trading shows C at $5.01.

Here's what C's chart look like. It is a 6-month daily chart, and since February's turnaround it is full of gaps that are not filled. When it gaps up, C seems to gap up over several days.

Today's jump was with solid volume (over 1 billion shares changed hands). Short-term (since beginning of April), there is no divergence in technical indicators. MACD histogram's negative divergence in March resulted in choppy trade but not in complete reversal.

Normally you would think it should correct right here, after a jump like C has had since April 1st, particularly after today. But traders were buying C's April $5 calls (volume was 392,352) all day today. What do I know at this point? Some drunken soul on Yahoo message board for C was calling for over $6 on Friday, $8 on Monday when Citi reports its earnings.

52-week high was last August, at $5.43.

Ultimate Shoulda, Couda: PALM

Ever since I started this blog one year ago (almost exactly one year ago), this is by far the biggest miss I've ever had.

PALM.

How big of a miss? I could have bought PALM's April $5 call option at $0.02 a piece - 2 cents!!!!!, and it would have become $1.04 a piece in 3 short trading days. That's 5100% gain!

At one point on today (Monday), this option was traded at $1.30 a piece. 6400% gain.

What's most infuriating thing about the whole episode is that I DID OWN THAT OPTION.

I bought that particular option when PALM tanked after the company released its earnings. I thought it was an overreaction, particularly when analysts started to say things like "The only option left for that company is to declare bankruptcy" or "The target price is Zero." I thought, gee, I remember when they said those to LVS or C, and look what happened to them...

So I bought April $5 calls at 30 cents a piece. Then PALM took a double dip the next day, and it just languished below $4. The option price dwindled, as time premium decreased each day. I left them for dead, as it was a tiny position, not even worth selling to recoup the cost.

One day before the stock jumped on the takeover rumor, I looked at the option in my portfolio: $0.02 a piece. I thought, well, if I add the equal number of calls at this price, then my average price would be $0.16. Or, at this price I could buy 100 of them and it would cost me only $200.

Nah. Why throw money after a dead cause? I didn't.

Then the next day the stock jumped. 2 cent option was suddenly worth 16 cents. The next day it went sideways. Then on Friday it jumped again, and my option was IN THE MONEY! I couldn't believe it. The option was now worth 50 cents. I sold.

WHY DID I SELL? I had been totally willing to left the options for dead, meaning I was willing to lose all. But the moment I saw it in the money, that willingness just evaporated.

But then, WHY DIDN'T I WAIT TILL MONDAY? Today (Monday), PALM jumped another $1.

If I had bought 100 of this call option at 2 cents when I could, that would have turned into $13,000.

I just want to throw up.

VIX Is As High As It Was In May 08, Oct 07

at 16.23.

Take a look at the chart. The Volatility Index landed on some sort of support line from October 2007, when Dow and S&P hit their respective top. May 2008 was a minor top, from which the decline started that led to the crash in October that year.


Does this indicate we are again at a top? I don't know. The index could simply dip under this seeming support line and go back to the pre-crisis (before August 2007, when subprime mortgage crisis started to hit the fan) level of low teens (as if the crisis is over...).

Many analysts, traders have been saying that the rally since March 2009 is getting too long in the tooth. But then, I believe many of them have been saying that since July 2007.

Commodities Breaking Out of Range

That's despite the continued strength in US dollar.

This is a 1-year daily chart of crude oil. It has been in the ascending channel since June 2009, and I've been playing the horizontal range from October 2009 until now. Today it broke above the horizontal upper resistance, though still within the ascending channel.

The upper channel resistance will be somewhere near $97.5. I personally think crude oil is headed above $100 again.

When I sold my last UCO (double long crude ETF) call options when UCO hit $13.20, I flirted with the idea of buying puts on the pullback that I thought might happen. I didn't buy, for I had a feeling that the range would be broken someday soon to the direction of the prevailing trend, which was up. I was hesitant to buy another set of calls, so I lost on that. UCO ended today at $14.20, and I'm sitting with the gain of 18% on the ETF.

I'm at a loss right now what to do with crude oil. My comfort range may be gone. I'll wait and see if it comes down to test the breakout point ($84). If that holds, I do want to add to my holdings of UCO, either the ETF itself or call options.

Here's another commodity that's about to break out of nearly 2 years of consolidation. Do I see a huge cup and handle formation? If it is a cup and handle formation, the target price will be the depth of the cup added to the handle high breakout point: $788.

My play on palladium has been PAL (call options), which has gone absolutely nowhere because I bought them at a wrong time (when it was surging in the beginning of this year). But now it seems to be breaking out of the symmetrical triangle on a huge volume. I may be in the money by the option expiration (June), just like I lucked out on PCX calls...

Nasdaq Heading Back to Pre-Crash?

I continue to think Dow and S&P are heading to their respective 61.8% Fibonacci retracement area between 2007 October market top and 2009 March market bottom (Dow around 11,260, S&P around 1228) and have been sitting on my long positions.

And guess what. I totally missed the tech rally. I kept thinking, for example, AAPL (Apple Inc.) was a buy when it dropped to $190 in January. $190 was a support for several months. Didn't do anything. I still thought it was a buy at $217 (breakout point), and most recently at $228. I still think it is a buy on a pullback, but haven't done anything about it because I haven't been following Nasdaq as I used to and don't have a good feel for the index.

Nasdaq, after January swoon along with Dow and S&P which many traders and investors took as a sign of imminent severe downturn in the market, recovered and went past 61.8% retracement line around 2250 (that's where the index turned back down in January) and now seems to be on its way to 100% full retracement.



On 10 year chart, Nasdaq seems to be at a "Make or Break" place. The index is currently hitting the upper trendline from 2000 high. It is at a logical place to turn back down again. An ultra-slow slow stochastics (133) shows Nasdaq as an index has been a dead money for the past 10 years. Even now, it has barely emerged from oversold condition, with MACD finally coming back to zero.

We shall see. I think I will start watching Naz again and see how it behaves from here. And I'm hoping AAPL will pull back after iPad launch...