The Goldman Trade
Tuesday, August 7, 2007 at 08:46PM
Disclaimer: Before reading this post, realize that I am not attacking anyone, discrediting opinions, or creating controversy. I am strictly providing my personal opinion based on a decade of experience. If you happen to disagree with this opinion, you are wrong.
I am intrigued by this debate. The Goldman Trade.
Let's scan a few charts. Starting long term, and zooming in.
All price treated equal, a clear break of support. Broken in a vicious fashion compared to most retracements in this stock price. Nasty volume too.
Ahhh.... price has settled at support. It hasn't gone up a lot, but it has temporarily stopped going down. In a bullish environment, this is a low risk set up, meaning a break below should be treated as an exit.
Log Arithmetic shows another trade at a potential trendline. Which is great, but can you look past the last several months? If not, I am going to make you...
GS 1 Year Chart Log Scale
Both charts (Log & Log Arithmetic) show the same thing broken support after a vicious sell off.
BTW- on the topic of Log vs Log Arithmetic, my opinion is that all price action should be treated equal. For short term traders using a 1 year chart or less... you'll see the changes are less than insignificant. However, if you are a longer term trader or use charts beyond 1 year, this is a critical detail. Log it. Accept nothing less.
Back to the trade. Technicians always give more weight to recent price action and this sell off has me concerned for those looking to take significant positions here. I am not debating that the stock could rise or fall, but in terms of looking for the "cream of the crop" trades out there... this would be more of a gamble in my eyes. I don't discredit gambling. Plenty of trades I take are flat out gambles.
I am intrigued by this debate. The Goldman Trade.
Let's scan a few charts. Starting long term, and zooming in.
GS 10 Year Log Scale
All price treated equal, a clear break of support. Broken in a vicious fashion compared to most retracements in this stock price. Nasty volume too.GS 10 Year Chart Log Arithmetic Scale
Ahhh.... price has settled at support. It hasn't gone up a lot, but it has temporarily stopped going down. In a bullish environment, this is a low risk set up, meaning a break below should be treated as an exit.GS 5 Year Chart Log Scale
Log scale shows a clear break below support, but also illustrates some clear lower highs and lower lows. That recent sell off is looking a bit worse!
GS 5 Year Chart Log Arithmetic Scale
Log Arithmetic shows another trade at a potential trendline. Which is great, but can you look past the last several months? If not, I am going to make you...
GS 1 Year Chart Log Scale
Both charts (Log & Log Arithmetic) show the same thing broken support after a vicious sell off.
BTW- on the topic of Log vs Log Arithmetic, my opinion is that all price action should be treated equal. For short term traders using a 1 year chart or less... you'll see the changes are less than insignificant. However, if you are a longer term trader or use charts beyond 1 year, this is a critical detail. Log it. Accept nothing less.
Back to the trade. Technicians always give more weight to recent price action and this sell off has me concerned for those looking to take significant positions here. I am not debating that the stock could rise or fall, but in terms of looking for the "cream of the crop" trades out there... this would be more of a gamble in my eyes. I don't discredit gambling. Plenty of trades I take are flat out gambles.
For those looking to build that consistent repeatable approach to trading, or even developing trading rules, this might appear confusing to take short term trades based on long term signals.
Bottom line, if you feel you know what you are doing, and you understand your risk and feel comfortable with the probabilities, fire away. There is a lot of bad news surrounding the group and market right now, and frankly, there are much better trades out there. Like Heelys. Down about 60% since the reco.
Recommendation: GS is trading higher this morning...better watch
Long: Log scale charts
Short: HLYS
Bottom line, if you feel you know what you are doing, and you understand your risk and feel comfortable with the probabilities, fire away. There is a lot of bad news surrounding the group and market right now, and frankly, there are much better trades out there. Like Heelys. Down about 60% since the reco.
Recommendation: GS is trading higher this morning...better watch
Long: Log scale charts
Short: HLYS
Reader Comments (136)
Rambo,
I see your ALEX and raise you DRYS an extra $1.50 today.
I'd just like to take a moment (quiet please, everyone) to thank Brett, Jeff, and Rambo for their guidance these past few days (in particular.) I know there have been lots of other great idea givers, too, but these three are all at a level above us in that they're doing it for a living. They have all given a tremendous amount of time and guidance to us all over the bumpy past days, and I, for one, owe them a huge debt of gratitude. The only way I can pay them back is to follow their sterling examples when I'm trading full time.
If we ever get the "OA get together" under way, I want to buy them all dinner. Yes... I said dinner. Not just drinks. What the heck... burgers AND fries. OK... time to get off my pedistal.
Thank you for your attention
PS. Jeff this is HUGE!!! Thank you for doing this. I think this GS controversy has had us all digging in our books and trying to figure it out. Your opinion means a lot to us and this has allowed me to update my rules and form yet another opinion to create what will become the Perfect Trading Rules... which I will write a book about and become insanely rich!!
For those of you too scared to take the GS trade, there will be other opportunities to grab the best broker on the planet at a good level of support. It just may not be until 2008.
just kidding. This blog is so much fun sometimes.
I am with you 100%
Anu
Hit my diagonal support yesterday. I was down to 1 contract in it due to my confidence melt-down and doubled up, it was such a great entry point. The stock is up $5 today. If it pulls back a bit intra day, I'd say get in.
I better only have two portions of GS.
Thanks for taking time to give us your opinion we appreciate it. Oh and as usual it is going to be right.
Like HLYS this morning. Although I did not take the original entry I did walk with a blistering 715% today!
Surprisingly
Short HLYS
Long GRMN
Love you guys!!
JEFF....
GS...
Thank you for a STELLAR opinion on GS. It yet again opens the eyes of all traders.
This GS debate shows that we are individuals that see different things, have different rules and trading styles, in fact, different crystal balls.
Sometimes my balls are right, sometimes they are not, LOL.
(i fear that is ammo for the PP)
But what is important for all to learn from this is how to manage your trade, limit your risk, and think on your own...
THANKS!! JEFF, you are the MAN!!
PS..got my OA gear today!!!
Cheers,
ARTY
Great debate yesterday sparking the post everyone.
Long: Debates
Short: Time
Jodi
Canuck
What do you think about 756 today? That ball came awfully close to my family members last night...
thank you for your help
It's IWM.
Mahmood
GS - hmm, what to decide. It maybe too much information now. On that options call Tom said something like "traders trade and do less analysis" or something like that. I just don't want to be kicking myself in a few weeks about GS like I am now about BSC and GRMN.
I have been swing trading the price action on AMG. It look like it will soon break the nice triangle it is building and my plan is to be in it when it does.
thanks
strat
Wish I was skilled enough to play in this market but I am watching at this time.
Believe it or not I am in some heat over my "watchlists." A few people have had some trades turn bad and they've made some phone calls to complain about it/me.
I'll do watchlists again soon after I vent. Beware, I am going to have to change the format a little bit.
BEFORE I FORGET, I DID GET YOUR MESSAGE AND I WILL STOP BY AND TALK TO YOU DURING LUNCH. THANKS FOR THE OFFER!!!
Long: Watchlists
Short: Stupid People that complain
:o)
Jeff,
Thats terrible that people call up and complain about trades they took that didn't work out. People have to own their own trades, and stop crying and blaming others for their losses.
love the watch lists, and the ideas you throw out there, it gets me thinking for my own trades. hopefully they don't have to change too much.
gh
long island, NY