The Goldman Sachs Group, Inc. (GS) beat analysts' earnings estimates when it released results before the opening bell on Tuesday, July 16, and the stock traded above its quarterly pivot at $212.96 throughout the day. The day's high of $217.33 was its high for 2019.
Goldman shares closed the first half of 2019 at $204.60 on June 28, which became a key input to my proprietary analytics. The only level left over from the first half is its annual pivot at $186.87, which has been a magnet since Jan. 18, and the price last crossed higher on June 18. The daily chart shows that a "golden cross" is about to be confirmed. The weekly chart has been positive since the week of June 28, when the stock closed at $195.94.
Fundamentally, Goldman stock is reasonably priced with a P/E ratio of 8.81 and a dividend yield of 1.61%, according to Macrotrends. The investment banking firm and component of the Dow Jones Industrial Average extended its earnings per share winning streak to nine consecutive quarters.
In the long term, Goldman stock is consolidating a bear market decline of 44.8% from its all-time intraday high of $275.31 set during the week of March 16, 2018, to its Dec. 26 low of $151.70. The stock has been strong in 2019, with a gain of 29% year to date, and it is up in bull market territory at 42.1% above its Dec. 26 low. Even so, the stock is also in correction territory at 12.1% below its 52-week high of $245.08 set on Aug. 28.
The daily chart for Goldman Sachs
The daily chart for Goldman shows that the stock is poised for a "golden cross," as the 50-day simple moving average at $197.83 is about to rise above its 200-day simple moving average at $198.48. When this is confirmed, higher prices are likely to follow.
The close on June 28 at $204.60 May 29 was an important input to my proprietary analytics. The annual pivot at $186.87 becomes a value level. I show semiannual and monthly value levels at $200.49 and $161.73, respectively, with its quarterly pivot at $212.96. Note that the stock closed at $162.03 on Dec. 26 after setting the cycle low, with the close above the Dec. 24 high of $160.00 defining a "key reversal" day.
The weekly chart for Goldman Sachs
The weekly chart for Goldman is positive, with the stock above its five-week modified moving average of $204.55 and above its 200-week simple moving average, or "reversion to the mean," at $207.71. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise this week to 76.39, up from 66.64 on July 12. Helping the 2019 rebound is the fact that, at the Christmas low, this reading was 6.32, well below 10.00, which was an indication that the stock was "too cheap to ignore."
The horizontal lines are the Fibonacci retracement levels between the July 2016 low of $138.33 and the high of $275.31 set in March 2018. The stock is trading between its 50% retracement at $206.84 and its 38.2% retracement at $223.00.
Trading strategy: Buy Goldman shares on weakness to the "reversion to the mean" at $207.71 and reduce holdings on strength to the 38.2% retracement at $223.00.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
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 12x3x3 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. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.