The company's stock has tripped into bear phase, but it's not convincing -- the technicals indicate a weak, although strengthening, trend. Earnings are scheduled for April 19, which cannot but lend a high degree of volatility to trading over the next options cycle.
| sym | chan | adx | traj | psar |
|---|---|---|---|---|
| GS |
The price, although below the stop/loss level, today so far has retraced most of Monday's decline. The average directional index is at 15.5, which is not much of a trend at all for a stock whose dividend yield is under 1%.
| sym | bday | blevel | stop | 2-day? |
|---|---|---|---|---|
| GS | mar7 | $160.12 | $164.71 | ✔ |
Despite its advantages (size, smarts, political connections, yada yada), GS has financials that nicely match a bear play. The return on equity is a pitiful 11.5%, and debt is nearly four times equity (debt/equity ratio of 3.8x).
The price is trading at levels seen in October and November of last year. The present decline is from a swing high set on Jan. 18, with a retracement swing high set on Feb. 16
Downside resistance is at Monday's low and swing lows on Nov. 30 and Sept. 29.
Reversal Levels
- $175.34, +8.7% (jan. swing high)
- $169.90, +5.4% (feb. swing high)
- $161.25 --- You are here.
- $158.50, -1.7% (monday's low)
- $156.14, -3.2% (nov. swing low)
- $154.66, -4.1% (200-day moving average)
- $142.54, -11.6% (sept. swing low)
Bottom line: Longer-term trend, shorter-term trend, financials -- all the stars seem to be aligned for a GS bear play.
I'm troubled by the weakness of the trend as measured by the average directional index, and also by today's strong retracement.
As a cautious trader, I might well decide to wait until GS survives the two-day instant-death rule (a new bear breakout must not close above the breakout level for two days subsequent to breakout). I also might be tempted to wait for the average directional index to steepen its climb.
My biggest concern about betting against Goldman Sachs is a nagging suspicion that they are in control -- of their competition, of their financials, of their regulatory environment. They are one very powerful company, and I suspect that they can flip their performance from weak to strong at will based on an executive decision. Given the present angry political environment, it makes sense for GS to appear weak. But I don't think that will last.
So if I enter GS on the bear side, it will be as a jackrabbit play -- get out at the first sign of danger.
Key
- chan: Channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
- adx: Average direction index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 30 and up but below 40, magenta (light purple) for 20 and up but below 30, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, purple for sunset on the horizon and brown for the earth.)
- traj: Trajectory of the ADX, green for strengthening, red for weakening or yellow for unchanging. Note that if the adx column is orange and the trajectory column is red, then the position must be closed.
- psar: The parabolic sar, either green for bullish or red for bearish.
- bday: Breakout day, the day the price broke through the upper or lower 55-day price line.
- blevel: Breakout level, the price level of the line that was broken through.
- stop: The current stop/loss price. Early in a bull or bear phase, this will be 5¢ below the low or above the high, respectively, on breakout day.
- 2-day?: Marked with an "✔" if the two-day rule is in effect. Under the rule, if the price closes below the breakout level on each of the two days following breakout day, then the position must be exited.
About channel analysis
Read a detailed explanation of my channel analysis method, including trading rules.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
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