For much of 2009, Goldman Sachs (GS) has been one of the market's number one 'tells', so much so that it's become a rule among traders that as goes Goldman, so goes the market. If the stock was strong on a weak market day, you could almost bank on an afternoon rally. Likewise, if Goldman traded heavy on a strong day, taking profits ahead of a potential sell-off was a prudent move.
The fact that the two have been so connected makes the recent action in GS that much more puzzling. Even as the major averages have broken out to new highs for the year, Goldman has substantially lagged the market. Not only has it not managed to break out to new highs, but it can't even muster up a push above its 50-day moving average.
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The underperformance of Goldman Sachs is even more visible in a chart of its relative strength versus the S&P 500 which peaked in early October. While bears will argue that Goldman's underperformance is a sign of things to come for the market, bulls would counter that like other relationships in the market, the "Goldman Rule" is just no longer relevant. Whatever the reason for the decline, the peak in Goldman's outperformance came right before the company's third quarter earnings report, when talk over the so-called obscene bonuses first surfaced. The fact that Goldman is now on the radar of every populist politician in the country at a time when Washington considers making money a sacrilege, adds an added risk that some investors likely think just isn't worth it.
