Goldman Sachs Earnings Unlikely to End Downtrend

The Goldman Sachs Group, Inc. (GS) stock rallied 4% to a six-week high in Wednesday's pre-market after the firm beat fourth quarter profit and revenue estimates by healthy margins. Investment banking revenues came up short, falling 5% year over year, despite intense capital flow generated by corporate tax cuts. The rally stalled near the 50-day exponential moving average (EMA) ahead of the opening bell, with this magnetic level likely to resist further gains, at least for a few sessions.

The stock is still trading well below the 200-day EMA after dropping more than 30% in 2018, its worst performance since 2008. The long and painful decline into December reached a 10-year trendline, raising the odds that the current bounce will continue for weeks. However, it's tough to declare a new uptrend because heavy overhead supply is likely to end the advance before the stock trades above $210.  

GS Long-Term Chart (1999 – 2018)

Long-term technical chart showing the share price performance of The Goldman Sachs Group, Inc. (GS)

The company came public in the low $70s in May 1999 and took off in a strong uptrend six months later. The rally ran out of steam near $130 in March 2000, at the same time the internet bubble bull market was coming to an end. Range-bound action tested support in the mid-$70s three times before breaking down after the Sept. 11 attacks, yielding new lows into October 2002's bottom in the upper $50s.

A 2003 recovery wave attracted strong buying interest that reached 2000 resistance two years later. It broke out immediately and doubled in price in the next two years, finally topping out at $251 in October 2007. A decline into 2008 completed a two-year head and shoulders breakdown during the October crash, triggering a vertical plunge that hit an all-time low in the upper $40s in November. That marked a historic buying opportunity, ahead of a vertical bounce that stalled at the .618 Fibonacci sell-off retracement level in October 2009.

The stock completed a round trip into the 2008 high after the 2016 election and reversed, carving a rounded correction, ahead of a December 2017 breakout that added just 15 points into March 2018's all-time high at $275.31. The subsequent downturn failed the breakout in May, generating persistent selling pressure that ended at the 200-month EMA in December. The monthly stochastics oscillator crossed into a sell cycle in March 2018 and fell to the most deeply oversold level in the stock's history two months later, while the subsequent buy cycle failed in November.

The decline into the end of the year ended at a rising trendline going back to 2008, signaling a major low, while the multi-year pattern has carved a massive triangle. This compression predicts range-bound action into the foreseeable future, better suited to position traders than long-term investors. The $200 to $210 price zone looks like a final target for the bounce, indicating about 10% to 12% upside before sellers resume control.

GS Short-Term Chart (2016 – 2018)

Short-term technical chart showing the share price performance of The Goldman Sachs Group, Inc. (GS)

A Fibonacci grid stretched across the uptrend that started in 2016 highlights the .786 retracement level under $170, which broke in December, ahead of a bounce that reinstated support. The current uptick has now reached 50-day EMA resistance, which could slow or stall upside progress. Meanwhile, the declining 200-day EMA has dropped to $215, with the loose alignment at the .382 retracement and broken two-year top marking resistance that is unlikely to break for months or years. As a result, it's a natural price zone to take profits or enter new short sales

The on-balance volume (OBV) accumulation-distribution indicator fell to a two and a half-year low in December, indicating an aggressive exodus by long-term shareholders. It will take massive buying power to restore sponsorship, lowering the odds that the current bounce will evolve into a new uptrend. Although the stock has risen more than 20% in the past three weeks, buying days have failed to match the volume of November and December selling days. This also warns that sellers are likely to return once oversold readings ease out of the system. 

The Bottom Line

Goldman Sachs stock is gaining ground after the company beat earnings expectations, but the next reversal needs to be watched closely because it has the power to break long-term support and drop the financial giant into a multi-year downtrend.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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