GS is Bearish

Goldman Sachs released a "FREE" report in which they are bearish on stocks, whenever GS or any other Wall Street firm is giving away free advice, you can pretty much count on them doing the exact opposite. Last time this particular analyst came out with a recommendation it was a buy on March 21st-of course what was Goldman doing, dumping everything. So now it's a sell, the part that is impossible to forecast is the F_E_D factor. Some think GS is out trying to buy on the cheap in anticipation of the June F_O_M_C meeting where as with every other meeting, the speculation is that a QE3 program is coming. I kind of doubt even Goldman has an inside line on what the F_E_D will actually do, I can't be sure, but I doubt it.

So is GS buying in anticipation of the F_O_M_C? Or the potential for a massive short squeeze above SPX $1340? The short squeeze certainly has the potential to make GS's note worthwhile from what I've seen as far as hard data goes-not guess work.

It makes me wonder. There are so many arguments to be made against QE in an election year and for, there' also the question of if QE3 would even have the same effect as 1 and 2 as event risk across the world is at Black Swan stages.

In any case, you have to be a fortune teller to guess what the F_O_M_C may do and what the effect of that will be. I'm not big on positioning trades based on a "Black or Red" Roulette type of analysis.

I can say one thing that may be worth consideration, I have several speculative trades (long) which were put on in anticipation of a strong bounce, for over a month I have expected 1 last strong bounce before the market makes a serious new leg lower and we although last week was ugly, it wasn't the kind of serious I'm talking about.

Based on hard analysis, I'm not letting go of my shorts, but I may consider hedging them out with a larger spec position in some long trades. The thinking goes like this (and keep in mind I already have a healthy short presence), add a few more spec longs to hedge the shorts in case of an unpredictable event like QE, I have my opinions about QE, you have yours, everyone has an opinion, but opinions aren't anything more than gambling-there not at all the same as trading with an edge. However if I add some more spec trades to hedge the possibility of a QE-type announcement, it's almost a no lose situation. Th spec longs would do well in a short squeeze market move, at the top of a short squeeze move profits can be booked further hedging the short positions and we should be near a F_O_M_C meeting at that point. My intension is and has been to add shorts in to price strength, if I can make a little extra on some more spec longs, all the better should the market move as evidence shows.

As for the unpredictable F_O_M_C, the spec longs would hedge out a lot of risk in case there's a QE3 announcement. For the record though, at just about every F_O_M_C meeting, there's always someone who seems to be in the know saying QE3 is coming.

Even if it did, the situation we are in now with Europe which could turn in to a black swan on any given day (but the risk is much higher in June at the elections) the situation in China and the US are all very much different and much, much worse than when QE1/2 and even Twist were announced. The macro-economic situation and risks have grown exponentially. Trying to figure out what the F_O_M_C will do is in my opinion, a waste of time, but increasing exposure to some more spec longs seems like a reasonable course given the probability of them doing well in a real short squeeze and they have the added benefit of offsetting the F_O_M_C unknown.

This is just food for thought and I haven't made any decisions. If I were to increase long exposure (keeping in mind the majority of the portfolio is already short-I wouldn't be as quick to add longs without having a large short presence already), it would still be more speculative with the major portion of allocation being short as this is where we have hard facts and data, the rest is a guessing game.

Heck, my AAPL calls may be enough on their own as a hedge with them up +76% right now, although I'd have to roll them out to a longer expiration.

This is where thoughtful risk management is important and letting the trade come to you helps that cause.

Food for thought...