Why I'm Short Selling Goldman Sachs

Scanning the Charts for Opportunity

As I scan the charts this Monday morning for some low-risk high-rewards trade setups for the week, I’m getting updated on this week’s news and upcoming events. The first thing that grabs my attention is this headline. China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries. China owns $1 trillion of USA debt. Keep your eye on that significant one. President Obama says he’s going to be working hard this week to get more credit flowing again. The U.S. Securities and Exchange Commission will be meeting on April 8 to consider whether to propose short sale price test rules. I don’t think they should, but then again, maybe it’s a good idea right now. The Financial Accounting Standards Board is planning to discuss mark-to-market accounting rules on Monday.

Last Week and This Week

The market had a pretty good upside move last week considering the downtrend it’s been in. I’m hearing more optimism to keep buying stock at these levels. I’m not betting on it just yet. In fact, I’m putting a short term short sell call on an investment bank titan this week. I’m looking for one more big selloff in the market to find a solid sustainable bottom at least in the near to intermediate term. Longer term stock prices have gone down so much, the longer term investors might start coming in more and supporting prices somewhat. The market right now looks to be in a bottoming process. We will just have to watch, see, and be ready to move with it on whatever it does.

Selling a Big Bank

On September 1, 2008 I put a short-sell on JP Morgan (JPM) at $38 a share, and I got a lot of negative comments feedback about my JP short-sale pick. JP Morgan did indeed head south as did everything else in that bloody October, and now it’s trading for $23.75. This week, I’m putting another short sale on JP Morgan’s major competitor for the short term. I believe long term investors would do well to be buying into another big selloff of the financials if and when it happens. The buys of the century look to be showing up possibly. For the near term, I’m going short on the following financial stock.

Short Sell Goldman Sachs. Ticker: GS

Short Sell Entry: 95.64 to 107.41

Stop-Loss: 108 to 110

Take Profit Areas: 91.44, 87.24 to 83.04, 78.00

Goldman Sachs Company Profile

The Goldman Sachs Group, Inc. (Goldman Sachs) is a bank holding company and global investment banking, securities and investment management firm that provides services worldwide to a corporations, financial institutions, governments and high-net-worth individuals. Its activities are divided into three segments: Investment Banking, Trading and Principal Investments, and Asset Management and Securities Services. On December 11, 2007, Credit-Based Asset Servicing and Securitization LLC, a sub-prime mortgage investor, completed the sale of its Litton Loan Servicing business to Goldman Sachs.

In May 2008, MBF Healthcare Partners, LP and Goldman Sachs announced the acquisition of OMNI Home Care (OMNI), a provider of skilled nursing and therapy home healthcare services. MBF Healthcare Partners, LP and Goldman Sachs will share joint ownership of OMNI. In June 2008, its division, Goldman Sachs Urban Investment Group, and Cordova, Smart & Williams, LLC announced the acquisition of H2O Plus, LLC.

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Comments

[PROXIMO:]

Not much of a case offered for short selling GS.

Mar 16 12:40 PM

[misiosnechacz:]

I wouldn't put my money there. Banks are riding on CITI profits in first two months so I would say risky.

Mar 16 07:04 PM

[Robert H. H...:]

The investment case presented here is no more compelling than a coin flip.

Keep in mind GS will be reporting earnings soon and has made no pre-announcements. With GS, that usually means a positive surprise. With Treasury backstopping AIG, who in turn is using the money to post collateral on stock-lending arrangements and CDS exposures, GS is a major beneficiary. In down markets, GS and Morgan Stanley tend to win an increasing percentage of advisory business... little in the way of announced deals so far, but I'm sure GS is getting more than its share of mandates. Goldman's traders are pretty good, and volatility gives them more opportunities to exploit. There's been plenty of volatility this quarter.

Also, remember, GS sold stock to Warren Buffet and institutional investors in the $110 - $120 range late last year. With the stock pushing $100, and a little bump up from a good earnings report, GS might sell more stock, pay back TARP funds and become the only competitor not hamstrung by meddling Senators and Congressman.

I would expect the stock to go up, not down, if they pull this off.

Mar 17 10:17 AM

[Allan Frain:]

The real assets of GS are its influence over federal policy. I would not take a bet against a company who can put a Treasury Secretary in place capable pushing through the AIG bailout for their benefit. I would not take a long position as I would see it as empowering more of the same.

Mar 17 03:20 PM

[DonFurio:]

Nice short! haha

Mar 24 04:47 PM