Trade Analysis: GS

I have wanted to review this Goldman Sachs trade since the I closed it. There has been a lot of volatility both in and out of directly trading the markets.

We opened the trade on Wednesday, September 17 at 11:20 a.m.; why? For all the reasons you go long, Goldman Sachs had crashed and burned by 20 points, on huge volume, that spells washout. The intense negativity that I was feeling personally and sensed in the market was a powerful contrarian indicator. But it was I saw the VIX over 30 -- and shortly thereafter surged to over 40 momentarily--that I jumped. So, my emotions said a short, but one look at the VIX leaping to toward 40 said I had to buy. Remember if you're short when the VIX is high, cover. If you're not short end of VIX is high you buy.

So at 11:20 a.m. we bought at $112.50 and were promptly stopped out.

Well I don't know what that was all about, but were out and we didn't get stopped out at $106, but at $103.20 instead.

So what did I do wrong? Nothing. The the bottom just happened to fall out of the market just as I bought. Then I got back in, with a stop just under 100. When setting stops you have to consider the rest of the market and the specialist. I don't want to place a stop at $100 with everyone else. If for example all of the stops are at $100 then once $100 gets hit I will get stopped out only to watch the stock rocket pack up.

Then there is the specialist who is a criminal. The spin on the specialist is this:
it is very unlikely that there will be an equal number of buy and sell orders for the same stock. The specialist is supposed to use his own money if necessary to buy shares to fill a sell order, or sell his own shares to fill of buy order. Fair enough so far, but look at what really happened. Without even seeing the book of orders at the time I can tell you that all of the stops were just below $90. That's why there's a huge spike down to $80. All the specialist did was pick up everyone's shares who put a stop in. Why? For that you have to look at what happened on the morning of September 18 when the stock gapped up to $140 a share, the specialist did that!

Here's what I'm saying happened dive to 80 was no more a function of free and efficient markets then the gap to $140 a share. It was a function of the specialist driving the price down to $80 a share picking up a few million shares for himself then gapping the stock of $140 a share the next morning. Notice how the shares did not stay at $140 for very long that's because the specialist promptly sold them back to suckers on the open market.

And I can prove this beyond any doubt at all if I could just see "the book" of trade orders. But no one gets to look at this book not the SEC and not the IRS no one. Not bad work if you can find it.

We eventually did get back in at $110 and out at $118. It wasn't my best trade by a long shot. I should have been watching the market and nothing else and there are few other faults I can find, but it does illustrate the criminality and corruption that the Street is built on.