Financial Sector Mayhem: Buying Panic! Selling Panic! (GS)

Simply amazing.

 

After we were told that a Trump presidency would sink the markets, destroy relations with longstanding allies, foment distrust and enmity with Mexicans, Canadians, Chinese, Japanese, and nearly every other foreign power out there, start trade wars, unleash civil unrest and crush the world’s last remaining hopes… precisely the opposite has happened.

 

It appears that everyone is now lining up to kiss the godfather’s ring.

 

We won’t outline the entire host of predictions offered by the mainstream media that fell afoul of reality, but we do offer one, brief item and a picture.

 

The ‘item’ comes by way of the Goldman Sachs Group Inc. Analyst Index, a survey of Wall Street’s deepest thinkers on a range of issues.

 

The chart below shows the group’s answer to the question of which sectors would likely thrive as result of a Trump victory, which would wither, and those for which the analysts hadn’t a clue.  The cumulative tally is shown below –

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While much uncertainty abides (viz. the middle bar), the vast majority of responses pointed to favorable outcomes across the board – outpacing unfavorable expectations by a 3:1 ratio.

 

That is, analysts believe that in aggregate, most sectors will benefit from a Trump presidency.

 

And that’s quite shocking, considering the media spin in the months leading up to the election.

 

JP Morgan/Chase also weighed into the mix, stating that if Trumpian economic policies “that have the potential to stimulate growth get implemented, the S&P 500 could see as much as $20 in additional earnings-per-share growth over the next few years.”

 

Hmm…

 

Could it be that Wall Street was sitting quietly on this information, the better to profit if and when the knee jerk selling following a Trump victory was under full swing?

 

Because someone made an enormous whack of cash in the last few weeks as the Dow tacked on some 2000 points on the round trip that followed the close of polling.

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Could it also be that the folks at Goldman Sachs were eager to get in on the action?  A look at the following chart indicates that they may have had an interest in the whale of a move that ensued.

 

Have a look –

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In a rather extraordinary turn of events, Goldman Sachs shares rocketed higher after the news of a Republican victory, climbing from $175 to $215, and putting a whole lot of GS employees’ options deep-in-the-money.

 

That’s an ‘overnight’ gain of almost 23% that nobody was considering prior to the election?

 

As the chart indicates, over a million options were put $16 in-the-money by the time they expired two weeks ago.  That’s sixteen million dollars in the hands of a very well-heeled (and knowledgeable) group of executive investors, who, apparently, didn’t see fit to stop there.

 

Since the election, company filings show that in excess of $205 million worth of stock has been sold – more than three times the amount sold in any month over the last five years!

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Could that be significant?

 

Are they selling because the stock climbed too far, too fast?

 

Are Goldmanites expecting a retrenchment?

 

Could they be ringing the bell – i.e., indicating that a market top is in?

 

Could be, Ralphie-boy, could be…

 

Our take is somewhat different.

 

Whatever games may or may not have been played in goosing the Goldman gander, we believe that a great many employees saw a gift in the stock’s steroidal Trumpian rise and just couldn’t resist selling.

 

We read nothing more.

 

The stock could very well decline from here – or at least drift sideways until the technical ‘overbought’ condition has been erased.

 

And considering where things now stand, that could take a while to complete.

 

Have a look at the last three months’ trade on Goldman Sachs (NYSE:GS) –

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As you can see, the stock’s rise has been a shot out of the blue – nearly 40% tacked on in 60 days, after what was, admittedly, a very poor showing in September.

 

The move had solid volume behind it through November (in blue), but as of today it looks wildly overbought.

 

With RSI in the rarefied 80+ region, there’s little for a technician to do here but AVOID (in green).

 

So, will the stock sell off?

 

There’s a strong likelihood of that happening, but nothing’s for certain.

 

Will it drift sideways for the next month or more, until the overbought condition has been worked off and new buyers feel more comfortable taking a position?

 

Also a possibility, to be sure.

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That said, there’s always a chance that a stock could go higher into the overbought and remain there for some time, naysaying the numbers and the analysts and all that’s good and innocent in the world.  Anything could happen here.

 

But we’ve a hunch that the financial sector as a whole will experience a brief retrenchment, as this latest month has been its BEST EVER, IN HISTORY!

 

That’s right.  The month of November goes down as the lunar cycle in which the market cap of the S&P Financials grew by better than $275 billion, its single biggest growth spurt on record.

 

Hmm…

 

We’ve been wagering that the financials would surprise to the upside and outdo everyone’s expectations as the bull market roared into fifth gear and a final blow-off top was in sight.

 

We’ve also ventured that the final stage is now upon us, i.e., that a financials rally was pending, and, sure enough, that’s exactly what’s occurring now.

 

But we also believe that the current move is unsustainable.  It could be we’ll get a percent or two more from the big names in the sector, but as a whole, we believe they’re consigned to near-term mediocrity.

 

And nowhere will this be more apparent, in our estimation, than in the aforementioned Goldman Sachs shares, whose near term ride will almost certainly be sideways to lower.

 

And for that reason…

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Many happy returns,

 

Matt McAbby

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  1. Ron Patterson

    I never received this email. See my previous email this date re the problem.
    Also, are you recommending a specific trade here (short GS?) – or – per your ad at the bottom of the page “Want to receive access to this article expert stock pick?’ – Then ‘BECOME a MEMBER’ But I am a lready a member and logged into this page. ???
    Again, your lack of a phone contact number makes all this much harder. I really want to stay subscribed Matt as your advice is good that makes it difficult.

    • Swimneil83

      Hey Ron,

      Give it a shot now… We tweaked something and also gave you a little upgrade for the inconvenience (Free Subscription to The Executive Lounge… you can access everything now..)

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