Taking people’s word for it isn’t our job. Our daily risk management task is to show quantitative scenario analysis.
The most important move in GS on Friday came when it broke our intermediate term TREND line of $165.58/share. Volume was huge (101M shares traded versus the average of 9M/day). That’s where the real conviction can be measured. Watch what buyers/sellers do, not what they say. What was support is now resistance.
One analyst said $1.20/share ($700M) is the downside. Obviously Mr. Market disagrees with that and I think there is a very narrow understanding of multi-factor global risk management in that estimate. For a broader conceptualization of risk, we’d point analysts to the history of de-regulating the derivatives market and who got paid by the opacity embedded therein.
In terms of downside from here, there is no support for GS to the immediate term TRADE line (dotted green line in the chart below at $149.46). On a breakdown and close below that price, I don’t see any support of consequence to $131.11.
From a risk management perspective, it will pay to wait and watch for a few days. GS reports tomorrow. Whether it’s right or wrong, you can be rest assured that the political likes of Gordon Brown (election May 6th) will have their eyes peeled on any excess in those earnings and use those against CEO Blankfein.
Finally, watching a flailing Chris Dodd live on TV right now should remind us all that there is major political risk embedded in the last bubble that has yet to be popped in financial markets - The Bubble in US Politics.
Keith R. McCullough
Chief Executive Officer