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Taking away the news for a second, the market had a big distribution day on Friday…led by the FINANCIALS as ^GS^ was down huge…with other FINANCIALS like ^DB^ also roughed up.
COMMODITY stocks were also smoked as GOLD was hit hard right at resistance…and all the STEEL, METALS/MINING were hit. On top of that, OILS failed to break out at resistance and sold off on decent volume.
On top of all this, most leading stocks are stretched and extended and need a rest/pullback. For that matter, so does all the major indices. Major averages are still a good 4-5% above the 50-day moving average. Eventually, all markets revert back to the norm. The market was due but GS just gave the market an excuse.
I suspect we will see some more pullback/backing and filling at this juncture…notwithstanding several thousand earnings reports that are about to come out.
As far as GS, this could have market repercussions as confidence is the huge intangible that matters most. Markets and stocks will move mostly on earnings but after what we went through with all the b.s. from financial companies in the past few years, this does not help. I have been one of the loudest voices on the street about the lack of level playing field in my industry. Maybe this is a tipping point. Maybe not.
I was not there so I do not have a clue what went on…but let me state clearly…if GS did what they are accused of, it would basically violate laws of full and fair disclosure as well as trading against your clients. I do not understand why Paulson is not in trouble but I am no lawyer. I am in hopes that this goes away quickly because something like this overhanging the market cannot help the cause.
So far, GS seems bent on defending themselves not based on what happened but based on whether it is against the law. At the very least, the higher ups at GS probably need to take a class in ethics. At the very worst, they are lucky these are only civil charges. Of course, guilty before innocent. The big question is what comes next?
Already there are rumblings of other investigations, not only with GS, but with others. The worst thing that could happen would be long-term lawsuits of the financial industry overhanging the market. If someone is wrong, make them pay the price but hopefully, they can get this over quickly…but doubt it.
A massive amount of earnings reports comes out this week including GS…so going to be another interesting week. When in doubt…play lightly and wait until market decides. Right now, my guess there is going to be a decent amount of whipsaw, especially in the FINANCIALS.
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