GS: Bullish Wolfe Wave - Lousy Earnings

Excerpt from Goldman's release of earnings:

"The investment bank said it made a loss applicable to common shareholders of $428 million or 84 cents per share in the third quarter, compared to $1.74 billion profit or $3.19 per share in the year ago quarter and $1.05 billion or $1.96 per share in the second quarter of 2011.

Goldman's results disappointed both on revenues and the bottomline. Analysts were expecting the firm to post a loss of 16 cents per share on revenues of $4.25 billion according to consensus estimates."

YEEKS. Big earnings miss, far below analysts' expectations. But, remember...

"It isn't the earnings that matter. The only thing that matters is the market's RESPONSE to the earnings."

The market's initial response was all over the board. A big gap up at the opening gong, with Bulls saying, "See-ee? That bad news already is factored in!" Then a complete retracement of the early rally and into the red with Bears saying, "See-ee? The bad news was NOT already factored in!"

Ain't we got fun? LOL.

First and foremost in my mind was the Bullish Wolfe Wave that we've been watching for the past week. We never want to "see what we wanna see" in the market. We want to FOLLOW what's going on, as best we can. If what we're seeing at any given time doesn't play out, we don't want to try to force our interpretation on the market when it simply isn't there. In this case, specifically, we don't want to get locked into the idea that the Bullish Wolfe Wave is going to play out, but we also don't want to get lathered up bearish because of the huge earnings miss.

By noontime, The Bulls had come roaring back off the early selloff, had broken out of the Channel (in white) and had formed an Ascending Triangle (in yellow) with a smaller Ascending Triangle (in orange) nested within it. Lovely. We know how nice nested patterns and multiple patterns can be on a breakout. I bought 2,000 GS at 98.90 in anticipation of a breakout. Mental stop below the 98.58 low of the little orange Ascending Triangle.



The little Ascending Triangle broke out, but "bigger picture," the entire session was a large, wide-swinging Symmetrical Triangle and GS got refused right at the top of the pattern (white arrow), validating it as resistance. Oops.

Additionally, GS was languishing as it moved into the apex of the Symmetrical Triangle. Thomas Bulkowski did research on those patterns and discovered that if stocks go beyond two-thirds of the way to the apex and don't break out, the majority of them fail and break to the downside.

Because of those two factors, I decided to throw it in at 98.88 for a small loss and wait to see what developed. I don't mind "paying up" for a stock if it looks right.





Well-ll...she broke out, just ahead of the apex! I was wanting to get long again on more of a pullback, but I also didn't want to miss a nice rally if GS was going to take off to the upside, so I "paid up" and bought back my 2,000 GS at 99.25 with the same mental stop of 98.58, the low of the little orange Ascending Triangle.



I bought at the yellow down arrow, then GS promptly came down and busted my 98.58 mental stop, by just two pennies! UGH. You're joking, Ms. Market, right??!! LOL.

That sure looked like a stop-busting "shakeout/fakeout" when it occurred, but I respected it and sold into a little bounce, at 98.70, determining that I would "pay up" again if GS got back over 99.00, which would be pretty good evidence that the break of 99.58 was, indeed, a fakeout. "If, at first, you don't succeed..."

I "paid up" again and bought back my 2,000 GS at 99.05 (orange arrow). That play finally worked. The Bulls formed the Symmetrical Triangle in orange, a "fractal" (repeating pattern) of the larger white one, then we got what we so often see with nested patterns and multiple pattern breakouts...

...KABOOM.

Despite the fact that the Bullish Wolfe Wave still was IN PLAY and that the rally "could be" much more explosive, as is the nature of Wolfe Waves, after two false starts, I sold into the upside Screamer, at 100.72. I was satisfied with that result and also was happy to give my old eyes a rest after watching the chart for five hours. I ain't as young as I useta be ;)



After a brief pullback, GS exploded to the upside again, putting in a session high of 103.79 (whew!), which...



... didn't quite make it to the Wave #6 target line, but it scored a big chunk of it.

Yesterday's market REPONSE to earnings was a case of the technicals trumping the fundamentals (much worse than expected earnings). That isn't always the case, but if we try to FOLLOW the market as best we can and focus on what is happening, we'll do alright.

My "best" certainly wasn't that swell yesterday, with the two false starts, but I came out of it alright. Trading the market is very much like playing poker. We aren't going to win every hand, but if we limit our losses and keep banging away at it, we'll do fine.



Gain: $2,200