Monday, October 04, 2010

The Mighty Goldman Sachs

Update:   we are selling some of the swing position into this BoJ market ramp and taking a more conservative position.   Moved stop up to today's lows to protect profits (146) and are going to try to sit on the rest of the position until at least 153/200 SMA.  Sold more 149.8, moved stop up to 148.5 break.

We posted this chart last Wed -- writing that we would go long on any trend-line break.  
We are swing long GS and have traded GS long every day since the trend-line break (usually pair trade long GS/short BIDU or long GS/short TNA). 

Nice move from trend-line and now basing under 50SMA/148.5 resistance which has been tested three times.   This is a defined range with very good risk-reward.    We have a good entry and are comfortable sitting in anticipation of the break-out.   What if it weakens?  We would reduce size on a move down through the 100 SMA and 142.5.  Why wouldn't we bail completely?  Because if GS weakens we would add TNA short hedge.

      GS important stock for the market -- keep these levels on your screen going forward this week.

The strategy of adding a hedge is an excellent tool for keeping you in a trade that you like, but that is causing you short-term pain.  For example we came into today long GS, seeing the weakness on good breadth we daytraded short QLD TNA in order to stay long GS and follow our plan.  We covered the shorts but left the long GS position intact.  If we go through 113.2 tomorrow we will do the same -- but probably with enough size this time to make us net short.   Why?  Simple -- the more times support is tested, the weaker it becomes as the buying pressure wanes with each test.

If you love a plan and don't want to be head-faked out then do short-term hedges around your position in order to stay in the trade.