Profits could overcome Goldman fears and boost stocks
The Goldman probe halted the run-up, but we could be setting up for a move if earnings are good.
By Jim Cramer, TheStreet
Think about what you heard after the Goldman Sachs (GS) news on Friday: The public will think, again, the game is rigged and that the government is anti-business, deservedly, because the markets can't be trusted.
Most of all, you got a sense of the market's "fragility." No one would say, "It's time to buy." No one. My mailbox was full of end-of-the-world submissions; palpable hatred was back.
Sure enough, when the market opened and didn't get clocked yesterday, there was a wave of put-buying from about 10:15 a.m. to 2 p.m. that took my breath away. The mass purchase of puts on just about everything was outrageous, and the put premiums staggering. The freefall of tech, spurred on by nothing in particular Monday, also shocked, with the Nasdaq at one point looking like it was going to roll back a gigantic move.
By 2 p.m., it seemed the market was hanging on by a thread.
Then the split Securities and Exchange Commission opinion came out about Goldman and the gloom parted. Suddenly people were buying drillers off of Halliburton's (HAL) comments -- they were selling them before -- and they were buying transports off the lessening of the volcano plume -- they were selling them before. The tech stories that were being pummeled -- networkers and chips -- got bought.
And the bank sellers disappeared. The put-buyers of Goldman Sachs saw their premiums erode even faster than the common stock ran up and a mini short-squeeze ensued. Citigroup (C) regained its footing and now has a bead on $5, which I think it can blitz through.
In other words, the pessimism that lurks underneath exploded outward after the Friday Goldman news, and after furious bets were made on the short side, there was no follow-through at all.
In a market that has defied the bears, we have repeatedly seen events that were perceived to be bull killers. We have then seen the scared bulls turn to bears and dump stock and the real bears fly in to buy huge amounts of puts.
That played out again Friday and Monday.
And it sets us up nicely for a run if the earnings today are as good as those we got last Tuesday and Wednesday before the weaker numbers and the Goldman investigation got in the way.
Random musings: The U.K. plans to investigate Goldman and will be working closely with the SEC in its probe.
At the time of publication, Cramer was long Goldman Sachs.
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After enjoying a smooth rise in stock prices since May, investors are about to be hit with another bout of volatility.
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