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Is Goldman Lawsuit An Impetus For Overdue Stock Market Correction?

 April 19, 2010 09:41 AM

The stock market has been in a virtually unstoppable bull run since the second week of February. On February 5th, the major indices reversed a two-week slide and since then, it has been almost a straight line upward for the stock market. In the last 35 sessions, the Dow Jones Industrial Average closed higher 26 out of those sessions.

With the SEC's lawsuit against Goldman Sachs (GS), we may now have a compelling reason for a very long overdue correction. The lawsuit casts doubts on financial stocks, as we don't know which company could get hit next with a lawsuit for doing the same thing as Goldman Sachs, although with Bear Stearns and Lehman Brothers gone, the possible remaining culprits are somewhat limited.

[Related -Gold hasn’t lost its allure in my portfolio]

However, it is hard to see how the charges against Goldman Sachs could be an isolated incident, although the fact that it took so long to bring the case against Goldman raises questions as to whether the SEC could not find anything else against other companies and or decided to only go with what it thought was a slam dunk.

For now though, with the doubt casts over financial stocks with this lawsuit, it is probably a much safer play to take very quick profits on long trades and to trade with a downside bias in general for a while and stocks at such overbought levels, we should see some high volatility levels that create huge short-term trading profit opportunities.

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