12/17/2016 – Goldman Sachs Group (GS)
The financial sector has been "en fuego" the last several months. This article will be a first look at one of its components, the Goldman Sachs Group (GS).
In the short to medium term, the Federal Reserve appears poised to raise interest rates more than one time this year. In a time of rising interest rates, banks should have better earnings. As a result, they will provide a greater return on their investment.
One of the biggest reasons for increased earnings is a very simple idea. They get to charge more interest on their loans and money going out the door.
So let's initiate coverage on Goldman Sachs by reviewing some charts from a couple of different perspectives. If the perspectives seem to agree with each other, then the potential trade set-up should have more predictability. Let's see what I can predict for the Goldman Sachs Group (GS) share price from the below analysis.
Goldman Sachs Group (GS)
This first chart for the Goldman Sachs Group (GS) is a 1 year daily candlestick chart. I illustrate the most likely Elliott Wave breakdown for its current uptrend. The stock appears ready to take a breather and consolidate in Wave 4 of its Bullish Impulse wave pattern.
From a price & volume perspective, GS developed 4 gap-ups, most of them on above average volume. That is very typical for a Wave 3 in a Bullish Impulse wave pattern.
Entering on this next pullback near the 2nd support area should give you a level of safety in this trade. Why? It should also be the same area that the first corrective wave pulls back to. After Wave 5 finishes and Wave A begins, it should pull back to the same area where this Wave 4 is going to pullback to. So if you end up missing a sell at the top of Wave 5 and end up holding onto the shares through Wave A, it should pullback much farther or if at all lower than where GS's current pullback is going to finish developing.
GS - Moving Averages
Now let's look at the same 1 year chart for the Goldman Sachs Group (GS) but this time from a moving average perspective. One trading idea I have mentioned before and that I also just recommended for Walt Disney Company (DIS) in its article from this morning is to purchase the 1st pullback to the 200 Day moving line after the development of a Golden Cross Pattern.
This chart for Goldman Sachs Group (GS) proves how this trading technique can go on to produce some nice gains. Consider that when Disney is pulling back to its 200 Day moving average in the next couple of weeks...
A pullback to the 50 Day moving average would most likely be around the $210 - $220 area. That area seems to intersect with the top Rising Window candlestick support area I illustrated on the very first chart above.
Since entering a hot sector should always be done in stages, consider making a 1/3 scale-in purchase around the $220 area. That scale-in purchase can also be used to trade on any bounce that does not break above the previous high.
If a new high isn't met on the bounce, get rid of the 1/3 purchase at a gain and look to start the 1/3 scale-in process again after the next downtrend is over and the share price starts to rebound again from a support area. Eventually, one of the support areas will hold and the share price for GS will develop into its next Bullish Impulse wave pattern to the upside.
GS - Fibonacci Retracements
I want to use the same 1 year chart again but this final time it has a couple of Fibonacci Retracement Tools overlaid on the chart. I have one overlaid on the entire uptrend, but I do not think this is the important one to monitor because the potential uptrend is not over. Instead, I think the important one of the two to monitor is the one I placed on Wave 3 (the blue tool).
The blue Fibonacci Retracement Tool suggests a pullback to the $201 area at its 50% Retracement Line. That is the line I would be watching for a scale-in purchase on GS if I were going to purchase some shares.
A second scale in purchase could be made around the blue 61.8% Retracement Line if its share price were to continue pulling back.
Goldman Sachs Group (GS) - Summary
Since the Goldman Sachs Group (GS) share price appears to have completed a Wave 3 in a Bullish Impulse wave pattern, it may be prudent to wait a few weeks to consider entering this trade. Watch for the share price of GS to reverse near one of the two upper support areas. Entering at one of these lower price areas takes on less risk and also provides a potential greater return back to the upside.
So have a little patience with this stock, but definitely keep an eye for when it drops into the preferred purchase area around the $200 - $205 area. Any purchase made below the $200 area like around $190 is probably a late Christmas gift to yourself. With 4 gap-up support areas below and a time period of rising interest rates, you should be able to sleep a little better by going long on GS during this next pullback. Ho ho ho.