The Goldman Sachs Group, Inc. (GS), poster child for the 2008 economic collapse, has dropped to a two-year low ahead of Tuesday's third quarter earnings report. It is sharply underperforming other New York investment houses, held down by weak business creation, a limp merger and acquisition market and Dodd-Frank reforms that have deeply affected a once-thriving trading floor. Retail and institutional sponsorship has fallen along with price, dumping accumulation measurements to multi-year lows.
Downside in 2018 began right after the stock mounted resistance at the October 2007 high, posted the same month that the previous bull market cycle came to an end. Goldman now joins Bank of America Corporation (BAC) and Citigroup Inc. (C) in failing to penetrate that major barrier, forecasting the most potent downside if the current bull cycle ends in the next 12 to 18 months. As a result, it's hard to recommend buying the stock, even if Goldman manages to post a blowout quarter.
Analysts expect the company to report earnings per share (EPS) of $5.34 on $8.43 billion in revenue in Tuesday's pre-market, compared with $5.02 and $8.33 billion in the third quarter of 2017. This consensus marks a significant reduction from second quarter EPS of $5.88 on $9.4 billion in revenue, which isn't a shocker due to lighter business activity during the summer months. The stock closed modestly lower following the most recent report even though the financial giant beat expectations.
GS Long-Term Chart (1999 – 2018)
The stock came public at $68 in May 1999 and fell to an August low in the mid-$50s. It then surged higher, topping out at $128 in March 2000, at the same time the internet bubble bull market came to an end. A September breakout failed less than six points above the prior high, giving way to a choppy decline that ended just above the 1999 low in October 2002. The subsequent bounce reached the 2000 high in 2005, yielding a powerful breakout that coincided with the housing and derivatives bubble.
The uptrend ended at $251 in 2007 and reversed in a steep pullback, followed by a death-defying plunge that gave up 125 points in just two months. It bottomed out at an all-time low in the $40s in November 2008 and turned higher, regaining about 70% of its value into the October 2009 high at $194. That peak marked an impenetrable resistance level until a 2015 uptick ended at $219, still more than 30 points under the 2007 high.
The 2016 election generated a powerful buying surge that cleared stubborn resistance, finally reaching the multi-decade peak in February 2017. It broke out one year later, posting an all-time high at $275.31 and turned tail, failing the breakout two months later. The stock has continued to lose ground since that time, despite all-time highs on the S&P 500 and Dow Jones Industrial Average, while the monthly stochastics oscillator has dropped into the oversold zone.
GS Short-Term Chart (2017 – 2018)
The stock broke 200-day exponential moving average (EMA) support at $246 in April, while May, July, August and September tests at that level generated bearish reversals. Many bulls gave up the fight during last week's broad downside, which pierced the June low at $219.12 and reached $210, which marks support at the November 2016 breakout. This price action also completed a 100% retracement into the May 2017 low and tagged the 200-week EMA for the first time since October 2016.
Multiple technical elements predict that the stock will soon enter a multi-week recovery effort that faces steep resistance in the $230s. Conversely, a breakdown here would flash warning signals throughout the commercial banking sector because all major players are trading above their 2016 breakout levels and the failure of a marquee name could have a catastrophe impact on bullish sentiment.
The Bottom Line
Goldman Sachs stock has sold off into support at the 2016 breakout and could bounce strongly in the coming weeks, but broad technical damage suggests that the stock's two-year uptrend has come to an end.
<Disclosure: The author held no positions in aforementioned securities at the time of publication.>