Bookkeeping: Adding to Goldman Sachs (GS) & some Strategy
Submitted By Trader Mark
Continuing yesterday's theme of "last stages of correction means junk sectors in, good sectors out", I am adding to Goldman Sachs (GS) in the $180 range. Up to 2.6% of portfolio. I am feeling even better about this switcheroo into financials yesterday after watching the relative out performance of the group today. [Bookkeeping: Starting Ultra Financial (UYG)] In fact as I take a swig of my Kool Aid, I am thinking of unicorns, mermaids and unemployment rate falling from 5.5% to 5.3% to offset last month's huge increase - and the stampede of CNBC pundits rushing over me to buy stocks tomorrow AM. ;)
As we all know, Goldman Sachs (GS) rules the world, they just allow us to live in it - sort of like the Matrix. The company has broken through the 50 day moving average which it's been hovering around the past few weeks (sometimes above, sometimes below). The 200 day moving average is not far away in the low $190s and then from there, it is off to the races.
If... I need to stress IF... we can hold this 1260-1275 on the S&P 500 and we are able to have our correction sector by sector (the last piece of it), this may mark a (shorter term) turning point. Or it could simply be the Kool Aid talking. We've talked about the playbook that has played out time after time in our series of corrections since last summer - first goes the junk (financials, retailers, housing), then goes the middle of the pack stuff (technology, solar, some industrials), all the while the generals of the market at that time (usually some portion of the commodity sector) holds out... then as everyone rushes into that 1 subsector as a safe haven, as the rest of the market crumbles... we get that rotation - and the junk begins to ascend from the ashes, and the best of breed commodities gets hit. This "seems" to be where we are now - coal finally was beaten with the ugly stick today and fertilizer was taken down to their 50 day moving averages yesterday. All that remains is natural gas. Ultrashort Basic Material (SMN) after hammering us for weeks on end, finally acted as a proper insurance, increasing by as much as 10% today.
Not every correction is identical - but this one has thus far been eerily similar to November 2007 - no huge spike in VIX - just erosion day after day after day. The generals have not been slashed to pieces like they were in August 2007, January 2008 and March 2008, but it's been much more similar to the November 2007 era (so far) I still would like to see natural gas stocks bludgeoned to feel safe(r), along with another week or so of commodity weakness. But I'm playing the playbook and saying the rotation continues for now. Even though we are taking some tough losses this week (we were WAY overdue), it is far better than what we endured the last few times we had this rotational correction since we have some benefit from the small end of our barbell this time around (non global growth stories). However, this might just be scene 1 of the final Act so too early to call any victories.
Again my general thought process is some sort of oversold bounce here - maybe 3 to 5%ish, and then a potential return to retest the levels we just bounced off of. If we cannot even perform any bounce off a 10% down month, that would be incredibly troubling. 8:30 AM tomorrow will hold our near term fate. Red or Black? Who said this is not just a big casino?
Long Goldman Sachs, Ultra Financial, Ultrashort Basic Materials in fund; long Ultra Financial, Ultrashort Basic Materials in personal account
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