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Will They Sell The News

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Goldman Sachs - GS - close: 130.15 change: +5.82 stop: 108.50

Why We Like It:
Shares of GS have been very strong heading into the company's earnings report. The stock even managed another 4.6% today as rumors were widely circulated that the company would raise more capital with a secondary stock offering accompanied with their earnings report.

Those rumors were true. GS is selling another $5 billion worth of stock to raise capital even though it seems like the company doesn't need it. The company has somewhere north of $150 billion in cash. One online data site listed GS' cash at more than $760 billion.

GS management seems to be taking tactical advantage of the market environment. There is a lot of money out there on the sidelines. Investors are looking for a good place to put it. Today's early release of GS' much better than expected earnings shows just how strong the company is. If you consider the lack of other companies with this kind of strength GS will probably have a lot of interest in their secondary.

Wall Street was expecting GS to report earnings tomorrow and estimates were for a profit of $1.60 a share. Goldman reported results early (tonight) and their profit was $3.39 a share. The massive earnings blow out should send the stock higher but the secondary offering would normally push the stock lower. There is going to be a big tug-of-war tomorrow. Anyone caught short ahead of the earnings report might try to cover due to the earnings news.

There are a lot of investors who have been long GS that are going to use this news and any subsequent rally as a chance to take profits and unload. This is what I'm counting on.

We want to buy the dip. GS is a volatile stock and the next couple of days could see the volatility get worse. We want to buy calls on a dip into the $115.00-110.00 zone. That's all the way back down toward the simple 200-dma, which should now be support. If triggered at $115.00 our first target is $124.50. Our second target is $137.50.

Suggested Options:
I am suggesting the May calls. Remember these are going to be a lot cheaper if we get triggered at $115.00.

BUY CALL MAY 120 GS-ED open interest=4428 current ask $17.50
BUY CALL MAY 125 GS-EE open interest=3470 current ask $14.45
BUY CALL MAY 130 GS-EF open interest=1284 current ask $11.65

Annotated Chart:

Picked on    April xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           04/13/09 (confirmed)
Average Daily Volume =      26.7 million  
Listed on April 13, 2009         

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