Zombie Code to Cost Goldman Sachs -13.96%

Goldman Sachs (GS – NYSE)

Wednesday, August 21, 2013

The infamous Vampire Squid appears to have ripped off one of its own arms! Yesterday, some zombie auto-trading code set incorrect price limits in a number of option symbols, possibly costing Goldman Sachs (GS – NYSE) hundreds of millions of dollars.

According to Bloomberg, the errors may have affected about 400,000 contracts for companies such as JP Morgan Chase (JPM – NYSE), Johnson & Johnson (JNJ – NYSE) and Kellogg (K – NYSE). We are told that at least one exchange is reviewing GS’ actions.

We abhor computerized program trading, wherein these trading houses use their presence at the exchanges to filch billions from the rest of us, and don’t much care for the habits of GS (apologies if you are an actual honest soul who works for, or trades through, them).

So frankly, we are not crying bitter tears over these losses. In fact, we note with mild amusement that a similar zombie code incident actually killed off Knight Capital, and wonder just how it will impact GS.

GS 082113

Bottarelli Research Tip: GS shares have been in an upswing since October 2011. However, within that broad trend, there have been six 3x Sell Signal Stacks, with the last forming up two weeks ago. The median follow-on loss after the first five was -13.70% and the average loss was -18.20%. The loss following the most recent stack is still only some 6.6%. Should this latest loss extend to the norm, we would see price drop to the 6.18% retracement marker at $136.25, for a net loss from current price of 13.96%.

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