GS Trade Set Up... It's all about perception

Anyone remember that Janet Jackson song, "What have you done for me lately"? I actually had a beautiful blonde girlfriend at the time it was a hit, she was, well lets just say she fit the stereo type of a beautiful blonde, even though I don't believe in stereo-types, it's just the nicest way I can say it. She actually asked me during a little spat, "What have you done for me lately" to which I did my very best not to roll on the floor.

The market is exactly the same; earnings may see knee jerk pops for a variety of reasons, but good or bad, the bottom line comes down to, "Is this as good as it gets or can they do better moving forward?" and price eventually responds according to the perception of that answer.

If you read through the post action report, first off Goldman beat on earnings and revenue, but EPS expectations were reduced before earnings to $4.24, GS came in at $4.60, but they would have missed had they not cut employee benefits/compensation.

Earnings for Q4 were -19% lower on a y.o.y. basis, which reflects a few different issues, but I think a big part of that is as a Primary Dealer taking part in POMO (essentially risk free, profit) which use to go straight in to the market, I think they are starting to do with it as was originally intended and shore up their standing as the F_E_D removes the Bernanke Put, essentially I'm saying the last 5 or so years have been one big stealth bank bailout as the actual 2008 bank bailout was VERY unpopular with the US tax payer, but this is so wrapped up in subterfuge, the average American has no idea it's even going on. Yes, I'm saying QE in large part was a stealth bank bailout.

They did $2.5 bn in Revenue for the quarter, $622 million of that came from the TWTR IPO. They did $1.46bn in equity trading profits for the quarter as well. Revenue was down -5% y.o.y at $8.7bn, but beating consensus.

If it weren't for the trimming of employee compensation, GS would have missed EPS by about $.50 and that's an already lowered EPS expectations going in to earnings.

Moving forward, I don't know how actual revenue and EPS creation gets better as a bevy of new trading regulations are coming online and the probability of future deals like the TWTR IPO this quarter, which was a big life saver are growing dim.

In addition (and if this doesn't tell you something about the market), the decline in Equity trading and Institutional clients (such as hedge funds) was down -27% and -15% respectively y.o.y. What is interesting to note is that Lehamn lost nearly 45% of their institutional client flow just before they blew up, the street is full of whispers and for you and I to find these things, you have to be an inspector to find hints of it on their earnings report. I'm not suggesting Goldman is about to become the next Lehman, but if a respected place like Goldman is seeing that kind of outflow of institutional clients, I wonder what some of the less respected investment banks are seeing?

As for the trade set up, this may be a little "Play it by ear" as the knee jerk reaction from earnings is in play and it's not always the best barometer, often it's a game designed to set the chess pieces up where they need them to be.

In any case, the charts...

 On a weekly chart of GS we have stage 1 base, stage 2 mark-up and note the volume is healthy as it rises with price, then at "a" we have the typical increased Rate of Change in upside price action that is a warning that a top is nearby and at #3 we have a top/distribution and #4 decline completes the cycle. The large triangle, I don't know what to make of that since there's no real preceding trend of proportionality, but it can't be helpful.
At the 2013 breakout which I consider 2013 as a large head fake on the 5 year trend in many cases, volume is not healthy, volume here is the hallmark of a trend that should fail.

I put down a few targets, I think <$100 is conservative.

Here's the breakout channel and note once there's a channel buster on the upside, price trades on the bottom of the channel.

RSI and MACD 26/52/9 both are negatively divergent as far as trend following goes, similar to the market which is good.

 My custom DeMark Inspired indicator for Buy/Sell areas shows a current sell, actually 3 in 2013 alone.

The daily 3C chart looks right on, note the distribution through 2013, we know there are hedge funds that have been liquidating all long assets for over 16 months now, so the distribution is not surprising.

The extreme in the signal is, but understandable as nearly $4trillion dollars have found their way in to the market one way or another via the F_E_D so that's a lot of extra slush that has to be distributed so the extreme and large signal make sense in that context.

 The 60 min chart going in to the recent highs is not a sign of a leak, it's more of a market wide trend.

The 10 min chart

The 3 min chart in to the earnings run up, I suspect there was a whisper number and a lot of knowledge of GS's actions like employee compensation, I don't think Wall St. was surprised by earnings even though they were a headline beat, they are certainly falling apart y.o.y.

I see a run on at least two stop levels today and I also see a small accumulation zone so I think there will be a Crazy Ivan shakeout of any shorts entering today as support was broken. You can see that chart above. The size of that chase and divergence with it will dictate what we should expect moving forward, but I have included a range in yellow, I think any where in that range will be a worthwhile short entry or add to for GS.

"It's not what you did, it's what will you do moving forward", if this looks like "As good as it gets", then there's no reason for smart money to take the risk of holding a stock that is likely to do worse in coming quarters as more regulatory headwinds approach for banks and the market itself is another story entirely.

I'd set price alerts.