I don’t hate Goldman Sachs in the Matt Tiabbi, vampire squid kind of way. Most of the people I’ve known over the years who have worked there are good people (including Gman, who did a one-week stint right out of college before he realized he was a squid out of water :). My distaste is for the Goldman stock GS. And more specifically its history of erratic trading intra-day. I don’t know if it is because the GS algos are not allowed to be involved in trading their own stock or it is just all the other algos having a field day at their expense, but rarely does GS trade cleanly.
As an intra-day equities trader my ability to make money depends largely on stocks that I identify as strong or weak moving in a somewhat predictable fashion. For the past few years GS has rarely done so. When it appears strong it will quickly drop out 50 cents or a $1. When it appears weak often it will spike a point or more. So with the exception of the very best technical setups or a news catalyst I don’t want to go near it.
But today I decided to trade it right on the Open (click here to watch the AM Meeting where I discuss the setup at 2:20 mark). It was gapping higher on earnings and right at weekly resistance at 138. I figured there would either be at least 2 points of profit taking below the 138 level or it could run up to 140+ if it held the 138 level on the Open. As the market opened it was right near the mid-point of its pre-market trading range. It was aggressively sold from 139 down to 138.50 so I decided to short it if it popped back up to 139. I was able to get short in the 138.80s and then covered my risk when it moved down to 138. The way it traded down to 138 led me to believe there was a good chance I would see a gap fill. It made a series of 4 lower highs on the way to 138, which is an indication of a seller methodically stepping lower.
Then the pattern changed. After dropping 138 and spiking to the 138.30s it traded down to 138 but failed to make a new low. I could see the buying at 138 and urged caution for anyone who was short. I figured at this point I would probably be stopped out of my short, but I chose not to go long on the quick reversal. It was clear that the up move from 138 to 139.25 had more volume than the quick drop out on the Open. So I changed my focus to trading it long to 140+. It was being bought in the 138.80s and tough to get hit on the bid. I eventually got some shares in front of 138.80 and placed my stop at 138.74. Normally I give my positions more risk than that but I have a strong distaste for the way GS moves. I was stopped out around 10:10AM when it spiked down to 138.30ish. Often on a quick spike down like this I will attempt to buy the position back when it stops going down but my history with GS kept me from doing so.
That decision was rather costly as it never spiked down again to a level where I would have been stopped out. Midday it setup in one of my favorite consolidation patterns, which is a five bar five minute horizontal consolidation. Bella is gonna address that GS breakout in a webinar tomorrow. You can register here. Spencer out! (I did end up making a few dollars in it from that short scalp from right on the Open).
Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 16 years. His email is [email protected]
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