Here We Go Again?

Why GS Will Hit $200

By Bryan Bottarelli
Friday, October 27, 2006 10:53 AM EST
Fri, 27 Oct 2006 15:53:00 GMT

Dear Bottarelli Research Member,

At the open of today’s trading, the major market averages drifted lower on the news that U.S. gross domestic product grew at a 1.6% annual rate during the third quarter, a number that came in way down from the 2.6% growth we witnessed in Q2. As the major market averages all dropped at the open, I couldn’t help but thinking “here we go again.”

In other words, every time we’ve witnessed selling pressure at the open, the markets quickly found upside strength and turned those losses into end-of-day gains. Will this same pattern happen again today? At this point it wouldn’t surprise me, and what’s partly the reason why I’m going to make the following bold statement.

Trust me, I can’t even believe I’m saying this myself, but I’ve learned long ago to profit by playing the current market trends no matter if you agree with them or not. Right now, the market wants to move hgiher. Period. And that’s why I think we’ll soon see Goldman Sachs Group (GS – NYSE) hit $200 a share.

GS

If you look at the chart above, you’ll notice that buying any dips on GS since September resulted in an incredible gain. If you simply count the red ticks — and then count the number days it took GS took to break above those red tick — you’ll notice nothingn is longer than one week (at most). Based on this study combined with this non-stop upside market, it’s probably a smart idea to take a speculative upside play on GS targeting a $200 stock price by November. Of course, GS has the propensity to make very violent moves, so if you’re not comfortable with a fast moving trade, this one may not be right for you. Nevertheless, we could hit a really nice gain is GS bounces up to $200 as we head into next week. Here’s the play:

PLAY: Buy the GS November 200 Calls (GPY KT) at or under $1.90, good for the day. Current bid/ask spread is $1.75 to $1.85. Since this option could move fast in either direction, place a loose protective stop loss at $0.50.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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