I guess my first reaction to the news of Goldman Sachs being charged with fraud was cynicism. Not that I doubted they were capable of it but that I doubted the Securities and Exchange Commission (SEC) was capable of actually finding anything of substance. Perhaps that is unfair but we are talking about the agency that could not discover the Bernie Madoff ponzi scheme when it was delivered to them on a silver platter 10 years before it blew up.
Around the same time I saw the Goldman story Friday morning, I got a note from a contributor to Futures who focuses on technical and cyclical market analysis, stating that the Nasdaq 100 was approaching an important technical level on Friday that usually accompanies major market tops or bottoms.
Jeff Greenblatt aka Fibonacciman has written several articles and hosted webinars describing his technical work. We had done a series of panel discussions for the Traders Expo pointing out how some big news events often correspond with these time windows creating the illusion that the event caused the market to reverse course.
In this context the Goldman news and sharp market drop, was simply the inevitable fundamental support (or scapegoat if you will) for a technical based market move. Sometimes the news event seems too big not to be considered the main culprit as with the Lehman implosion, and sometimes it seems like a stretch, as when analysts cited Treasury Secretary Tim Geithner’s hire as cause for a reversal in the dollar. Not everyone aggress with Greenblatt’s work but there is no denying that significant market reversals have tended to occur at these important technical price and time levels.
We will see how it plays out as it coincidently occurs just in the final stages of the legislative battle over financial reform. A fact some politicians are playing up. Could it be that poor Goldman Sachs is being used as a pawn in a larger legislative battle? I doubt it, though both sides undoubtedly have been and will continue to use this to push their agendas. But if we have learned anything in the last decade it is that the large investment banks, Goldman Sachs in particular, are at the top of the food chain.
More on the actual charges to come.