The Goldman Sachs Group, Inc. (GS) reported better-than-expected earnings per share on July 15, and the stock gapped higher at the open. Goldman shares popped to $225.23 that day and then dropped to as low as $196.30 on July 30.

Goldman Sachs stock rebounded last week with a close above its 50-day and 200-day simple moving averages, which converged at $204.85 and $205.77. If strength holds this week, a golden cross will be confirmed. The stock closed last week at $208.27, down 9.4% year to date and in correction territory at 16.8% below its Jan. 17 high of $250.46. Goldman stock is also in bull market territory at 59.2% above its March 19 low of $130.85.

Fundamentally, Goldman Sachs stock is reasonably priced, with a P/E ratio of 10.84 and a dividend yield of 2.45%, according to Macrotrends. The investment banking firm is a component of the Dow Jones Industrial Average. The company has beaten earnings estimates in the past two quarters after missing expectations the prior two quarters.

The daily chart for Goldman Sachs

Daily chart showing the share price performance of The Goldman Sachs Group, Inc. (GS)
Refinitiv XENITH

The daily chart for Goldman Sachs shows that the stock is consolidating a bear market decline of 47.7% from its Jan. 17 high of $250.46 to its March 19 low of $130.85. The stock has been below a death cross since March 26, when the 50-day simple moving average fell below the 200-day simple moving average. This was confirmed after the stock set its low.

On the V-shaped bottom, the stock returned to its 50-day simple moving average on April 20. After dipping as low as $165.36 on May 14, the stock popped to its 200-day simple moving average at 205.98 on May 27. The 200-day simple moving average has been a magnet since then, including on Friday's rally.

Goldman stock is trading above its weekly, monthly, and quarterly value levels at $183.05, $177.87, and $173.85, respectively. Note how close the stock is to confirming a golden cross, which will happen this week if shares stay above the 200-day simple moving average at $205.77.

The weekly chart for Goldman Sachs

Weekly chart showing the share price performance of The Goldman Sachs Group, Inc. (GS)
Refinitiv XENITH

The weekly chart for Goldman Sachs is neutral, with the stock above its five-week modified moving average of $201.18. It is below its 200-week simple moving average, or reversion to the mean, at $218.94.

The 12 x 3 x 3 weekly slow stochastic reading declined to 63.89 last week, down from 65.70 on July 31. At the January high, this reading was above 90.00, putting the stock in an "inflating parabolic bubble" formation, and that led to the 47.7% bear market crash.

Trading strategy: Buy Goldman Sachs stock on weakness to the weekly, monthly, and quarterly value levels at $183.05, $177.87, and $173.85, respectively. Reduce holdings on strength to the 200-week simple moving average at $218.94.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each level uses the last nine closes in these time horizons.

The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.