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Pop Quiz: Morgan Stanley, Goldman Sachs and Paring Down

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Keep in mind that the initial euphoria following a rate cut isn't always sustainable.

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The following originally appeared as a Buzz earlier this afternoon and is reprinted here for the benefit of the Minyanville community.


So, whataya do after a 7,000 mile trip that included (among other things), multiple Minyan mindmelds across the spectrum of finance and infotainment?

Well, on top of trading, writing, playing Sisyphus to my inbox, answering missed calls and, well--alotta other things!--I've gotta step into a monster meld before my second meld (Minyan Peter) arrives.

Alas, I'm not complaining---it's much better than the udder alternative--so here's some "tide ye over" thoughts until I return:

  • Minyan David asks if Mother Morgan (MS) has a "pin pull" to $65. While we can spy expiration magnets (out-sized open interest relative to average daily volume), my sense is that where this settles will have more to do with Goldman (reports tomorrow) than Morgan.

  • Along those lines, the "Goldman (GS) is gonna beat" rumors have been floating around for weeks. While the earnings (fundamental metric) will likely trump levels (technical metric), I will note 1) the stock is up 32% from the summer low, 2) it has thus far failed at the 200-day and 3) "breakdown" resistance resides above at $214ish.

  • Tricks of the trade! A little ditty I picked up a long time ago is to play the periphery on big earnings reports (if you choose to play them). For instance, the entire brokerage complex will move on the GS report. Goldman vols are "fat" (looming unknown) while others in the sector (Lehman Brothers (LEH), MS) have already reported and, as such, some of the premium has been removed.

  • Finally, to circle back to a thought we shared before the rate cut--and respecting the fact that past performance is no guarantor of future results, keep in mind that the initial euphoria following a rate cut isn't always sustainable. In fact, looking at this chart, one could argue that we should be using this lift as a gift to pare, parcel and protect existing exposure.

  • Setting stops, trading with discipline and exhibiting proactive patience allows us to make hay while the sun shines without getting married to the mob. Be smart and remember, Minyans, emotion is the enemy when trading.

    R.P.
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