By: Scott Redler
As our T3 Live subscribers know, I am in Florida for the weekend with family, so this morning when the news broke about Goldman Sachs I was not sitting in front of my computer. Part of my trading mantra is possessing the ability to step away from the office. To have success in the long-run, you must have balance in your life, and part of that is taking time to blow off steam.
That being said, thank goodness for my Blackberry. I entered the day with almost a dozen long positions on the Virtual Trading Floor, looking to taste some the final juice being squeezed out of the recent leg up in the markets. I had lightened up some of my size heading into announcements from GE and BAC, but still was exposed to a decent amount of risk. As the news broke about GS, I quickly got an email from one of my trading colleagues. At that point, the DOW was down only about 60 points, but I have been in the market long enough to know what effect this sort of news can have. Without hesitation, I immediately got on the phone with my trading platform and had them liquidate my entire portfolio.
The next step in the journey for a lot of traders is the ability to limit the losses on disaster days like this. If you were not quick to hit the eject button today, all those great trades from the past month were for naught. Today’s losses could have erased those gains and then some if you were not ready to take decisive action. Intraday traders could have made a lot of money today due to the increased volatility, but for the more swing-type trader, today could have been a disaster of epic proportions.
I think today can be valuable in that it teaches an important lesson. When you step on a land mine, you only have a matter of seconds to get away. Likewise, when this sort of explosive news story hits the airways, you only have a very short amount of time to prevent disaster. Run for your life, and ask questions later. If I had paused for even a minute to evaluate the news, I would have lost my shirt. I may have lost a few limbs from the exploding mine, but I prevented myself from getting blown up completely.
Today marks a day to take a giant step back. The market had become extended, but today’s sell-off was a news-driven event that has the potential to shake things up for an extended period. We are not in the business of making predictions, but perhaps today’s news could be the catalyst for the sizable correction many pundits have been calling for.
For me, the news itself is almost a breath of fresh air, a sign that fraudulent companies and people, no matter their size or power, will be held accountable for their actions. I think Americans had basically thrown their hands up and conceded the fact that corporate America owned Washington, that the taxpayer had no real power to affect change. Maybe today’s news will finally give the American people hope that our society is not doomed to the same fate as the Roman Empire. Irresponsible behavior in the financial community and a lack of oversight from Washington got us into this mess, and the resulting action from our bailout happy, print-money-now-ask-questions-later Federal Reserve has led the country into an even steeper spiral of debt and possible future hyper-inflation. Holding companies like Goldman accountable for their fraudulent actions is the first step towards ensuring nothing like this ever happens again. This time around, I just hope its not too late.
Next week I will begin to survey the damage, and look for potential opportunities to take advantage of this game-changing action in the market. In the meantime, enjoy the beautiful weekend and live to fight another day.