Monday, July 13, 2009

Goldman Sachs - Make or Break?

Since I follow financial stocks more than any other, I keep an eye on the financial index and the underlying stocks. Here's a daily 9-month chart of Goldman Sachs (GS), the firm in some unwanted spotlight these days.

Ever since the stock bottomed in November, it was in a fairly wide channel (between the two blue lines in the chart) until April 2009, when it broke above the upper channel line. This line acted as support as recently as July 8, and the stock bounced up and formed a mini W-bottom, as you see in the upper right-hand corner of the chart. So far so good, a bullish chart, right?

Well...I have a mixed feeling. For one, since April as GS climbed higher the volume has been declining (until very recently). MACD and RSI also register negative divergence - stock price on an uptrend, technical indicators on a down trend. Second, $150 (plus or minus $2) has acted as resistance twice already since early June. This $150-ish line is a long-term support/resistance, and it has been a resistance (hence the W-bottom formation).

The 3rd time luck is certainly possible, and the stock may break out above the resistance. The catalyst could well be the announcement of its earnings tomorrow morning before the market open. The stock jumped today almost entirely thanks to Meredith Whitney's only "buy" recommendation.

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