The emperors new clothes

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.

Goldman responds.

More on the actual charges to come.

About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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