Tuesday, November 24, 2009

A Goldman Sachs chart = a great use of screen real estate (GS)

IF the title has you confused, I am referring to your trading station's monitor(s) screen space. *Remember the more monitors you have the more $ you make* J.k -trader joke. Truthfully though, most day traders have many windows open (order entry/level II charts, executions, browser etc) taking up every available sq. inch with only the most important windows getting a parcel. I only have the most pertinent data windows showing so i do not have to maximise and or dig for buried windows. (I utilize four monitors on my machine in addition to two screens shared with the trader next to me. *shared screens display index spot futures charts along with all our screeners) Trust me, there is nothing worse than digging for an order entry window when your in a pinch. SO why a Golden Slacks chart?

For the last two years or so I've been using Goldman's trend as a leading indicator, in addition to all other real time leading indicators. I have found if Goldman's relative weakness and or strength is contrary to the overall market trend the market will ultimately follow the golden boy's. Why is this? My thesis: the smartest money is involved with this stock and the smart money always shows up to the party first and ALWAYS leaves before the party is over. i.e. first ones in and first ones out, buy the dip and sell INTO the rip.
Supporting facts:

1.The chart above shows a clear reversal in GS's long term trend with continued selling contrary to the S&P's.
2.Goldman without a doubt is the strongest out of all the large cap financials
3.The financials have been leading this shit storm, the S&P's will react to any major financial move

These might not be the most scientific supporting facts, but the fact of the matter is sometimes simpler is better in this market. Smart money/dumb money is a very simple concept in theory,but when applied to trading people miss the ball. Remember smart money leads. Lets take that phrase, apply it to my 1 min GS chart parcel to make some profits. The common most scenario I have seen plays out as follows:

The S&P' futures are sitting on highs with the $PREM failing to make highs preceding the spike higher signaling a possible reversal. I glance up at my GS parcel, low and behold this thing is quietly selling through key support points as the cash market trades with no reaction. This is a good enough signal for me to start thinking about taking longs off and or get short a heavily weighted S&P component, possibly financial, so i can catch the move down before the sell program commences. I dip a feeler into a short by way of puts looking for a NYSE TICK reading of -1000ish indicating heavy business on the bid, this tells me the sell program is running. I add to the short and let the trade play out, if the trade works i will book the profits as i normally would with any trade, of course tight tops because program trading can really move the markets.

Of course this is not the only way you can use GS as a leading indicator, fool around with it. I guarantee you will find very interest correlations I might not have even discovered yet. The key correlation is, if Goldman is moving up or down without the market following chances are the market will end up moving in that direction.

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