Leaving Goldman, Trading Goldman

While winners and losers from the surprise, early announcement of the results of the Federal Reserve’s “stress tests” continue to be debated in the media, some of the most negative sentiment is centered around Goldman Sachs (NYSE: GS), which was excoriated in a recent, resignation letter qua op-ed in the New York Times (a link to the article is available below).

Shares of Goldman Sachs pulled back by 3% in Wednesday’s trading, reversing much of the stock’s surge higher a day earlier. In the short-term, the sell-off may be as much a reaction to the stock’s move into technically overbought territory as anything else. Goldman Sachs had just rallied from a three-day pullback to new, two-week lows, climbing for four out of the next five sessions, including a gain of more than 5% on Tuesday.

It will take significantly more selling before Goldman Sachs is trading at levels where, historically speaking, traders have been more inclined to buy the stock than sell. Trading in neutral territory after Wednesday’s pullback, GS has a positive edge of more than three-quarters of a percent, and earned a one-point ratings upgrade early in the session.

Shares of Citigroup (NYSE: C) were also experiencing aggressive selling on Wednesday. Down more than 3%, as well, Citigroup also has earned a one-point intraday upgrade and a positive edge of nearly 1% heading into Thursday’s session. Both Goldman sachs and Citigroup have been trading in bull market territory on a consistent basis only since mid-February, and it remains to be seen if Wednesday’s selling is the beginning of what would be the second significant pullback in these stocks in a month.

Heading toward the second half of the week, it appeared as if traders might have the opportunity to buy short-term weakness ahead of the stress test announcements initially scheduled for Thursday. But with the announcements now in the background, traders may be more inclined to sell the news over the short-term, especially given the significant rallies many of these stocks have enjoyed in recent days. The Financial Select Sector SPDRS ETF (NYSE: XLF), for example, has gained more than 6% over the last six days, and has spent three out of the most recent four sessions in technically overbought territory.

If you haven’t had the chance to read the op-ed “Why I am Leaving Goldman Sachs”, click here.

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David Penn is Editor in Chief of TradingMarkets.com