Halftime: Goldman - Criminal Probe & Critical Levels
Once again Goldman Sachs is the story of the day – but this time the drama surrounds the stock’s price action.
Shares have broken below the crucial $150 level following not one but two analyst downgrades.
What must you know?
These latest headwinds have largely been generated by the Wall Street Journal which says Manhattan prosecutors are in the early stages of a criminal investigation of the firm.
As you likely know the latest charges come in the wake of a civil suit brought by the SEC. Goldman has vehemently denied the charges calling them "unfounded in both law and fact.”
Whether they’re fact or fiction they’re still generating a very serious headwind. Both BofA and S&P downgraded the stock on Friday.
In fact Matthew Albrecht, the stock analyst for S&P, lowered his rating to "sell" - citing the company's growing legal woes.
And Albrecht tells Fast Money in a live interview, “although I think tangible book value can continue to go up strictly based on earnings power,” he adds “it’s a relationship and reputation based business and this is only increasing the risk (for losing clients).”
“I just think there are better alternatives out there,” he concludes.
And the end of the interview host Melissa Lee says it’s important to note that “the 'sell' call seems to have been made on the expectation that the headline risk will cause some pressure to the business, but not that there’s a deterioration in the business right now.
All things considered - what’s the trade?
Looking at the technicals, we broke $147.50 which was key support, explains Todd Gordon of Forex.com. Now $138 is the next level to watch. But I’d be a buyer if it holds.
I sold the stock at $167 and I’m feeling really good about that, adds Patty Edwards of Storehouse. I would pick it up when I think the knife has stopped falling but I don’t want to get cut.
Looking at financials more broadly, investors are not rotating out of Goldman and into other financial names, explains Steve Grasso of Stuart Frankel. They’re just dropping the financials, all together. Combine that with the trouble in energy due to the oil spill we may have a hard time advancing. I'm a seller.
OIL, FINANCIALS TAKE DOWN MARKET
Elsewhere in the market, oil service names weighed heavily on the S&P 500 as the entire energy sector suffered from selling pressure in the wake of last week’s oil spill in the Gulf of Mexico.
As we told you yesterday, the spill has been spewing 5,000 barrels of sweet crude oil a day into the gulf and has moved steadily toward the mouth of the Mississippi River and the wetland areas east of the river, home to hundreds of species of wildlife and near some rich oyster grounds.
Florida Democratic Senator Bill Nelson, citing the risk of a potential "environmental and economic disaster" from the Gulf oil spill, said on Thursday he was filing legislation to temporarily prohibit the Obama administration from expanding U.S. offshore drilling.
"Until we learn what happened, I'm asking that you also call for an immediate halt to test wells and all other exploratory operations in coastal waters," Nelson said in a letter to Obama released by his office
What’s the trade?
I think there may be some buying opportunities once the smoke clears, says Steve Grasso. I’d watch Massey Energy.
I’m holding ERF , says Patty Edwards. It’s a chicken way to play it but I’ll take it.
Options traders are buying call spreads in BP , says Brian Stutland. I think it’s a bullish bet that allows investors to limit their downside risk.
TOPPING THE TAPE: HOMEBUILDERS
Homebuilders topped the tape Friday after DR Horton reported better than expected results.
But with the home buyer tax credit expiring today, is this a top for the homebuilders?
Techincals make me remain bullish on the homebuilders, says Todd Gordon.
I’m just not willing to bet on the homebuilders, counters Patty Edwards. If you want to play the space I’d do it with a long position in either Home Depot or Lowes .
TRADE TO GO” MCDONALD’S
Patty Edwards suggests putting McDonald’s on your radar.
The spill in the Gulf will likely drive the price of shrimp and fish higher, she says. Considering middle end restaurants aren’t doing well already, I think the outcome is that even more people will continue to trade down in the space. And I love the dividend.
CALL THE CLOSE:
Steve Grasso: Without the financials or energy I’m a seller.
Brian Stutland: Semis are usually a leader and their down; so I’m bearish.
Todd Gordon: I’d stay away from the broad market.
Patty Edwards: I think you have to pick and choose.
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Trader disclosure: On Apr 30, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Grasso Owns (NDAQ), (DYN), (LPX), (ASTM), (ABK), (BAC), (BGP), (C), (CVGI), (JPM), (NEM), (PRST), (PFE), (BA), (T), (CSCO), (X); Stutland Is Short (SPY) Through Options; Stutland Owns (XLF) Call Spread, Is Short Strangles, Is Long Downside Put; Stutland Owns (CVX); Stutland Owns (WFC) Corporate Bond; Stutland Is Short (BAC) Straddle, Owns (BAC); Stutland Is Short (GLD) Put Spread, Is Long 1x2 Call Spread; Stutland Owns (SLV) Calls, Is Short (SLV) Puts; Stutland Owns (TXN), Is Short (TXN) Call
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