Did the Fraud Charge Against Goldman Sachs Awaken the Sleeping Sellers?
Last Friday after the Goldman Sachs (GS) fraud charges, the DOW Industrial Average (DJIA) and S&P 500 (SPX) closed with their biggest dump since February of this year. The DOW recorded a 1.13% loss while the S&P 500 dropped 1.61% on the day. The S&P 500 closed at 1,192.33 — still over 49 points higher than its 50-day moving price average:
Our friends at Bespoke Investment Group diligently determined 73% of the trading days in the last 2 months have been up days. Since 1980, there have been only 3 other times such an event has played out similarly. However, according to Joe Weisenthal at Business Insider, in the 71 trading days year-to-date, the S&P 500 has not booked a single up 2% day and only 2 sessions were up 1.5% days.
If we look back to the last recovery from the Enron/Worldcom downturn, confidence in the system yielded a gradual ‘floating-type’ climb higher for equity markets. As criminals of the downturn were put behind bars and plastered on front pages, i.e. Jeffrey Skilling and Dennis Kozlowski, confidence gradually restored among investors.
In this cycle, last week an ex-trader at Bank of America (BAC) and Morgan Stanly (MS) pleaded guilty to a fraudulent trading scheme. As the penalties and punishments continue for the bad guys, retail investor confidence should improve. Thus, we may not see a big correction that some pundits are seeking, rather more of a lighter one as retail investors feel the waters are safe again.
On an outside note, we may start seeing more of Nouriel Roubini and Meredith Whitney with their infamous doom-and-gloom reports. From a technical perspective, it seems like the most opportune time for their redemption after ‘hiding’ during the massive bear market rally that has proved them wrong over and over again.
To determine whether the Goldman news will lead to a larger correction, keep an eye on these important market moving stocks slated to report earnings this week: Citigroup (C), Eli Lilly (LLY), Coach (COH), Goldman Sachs (GS), Johnson & Johnson (JNJ), Yahoo (YHOO), Abbott (ABT), Altria (MO), AT&T (T), Amgen (AMGN), eBAY (EBAY), Lockheed Martin (LMT), Morgan Stanley (MS), Starbucks (SBUX), Wells Fargo (WFC), American Express (AXP), Microsoft (MSFT), Pepsico (PEP), Amazon (AMZN), and Honeywell (HON).
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