(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Goldman Sachs Group Inc. (GS), once regarded as possessing the golden touch on Wall Street, has lost its luster due to several factors. These factors include its debt trading revenues, which have fallen to last in market share among the large investment banks, putting downward pressure on its share price.

This may change at least in the short term. Goldman's shares look set to rise, by roughly 10%, following recent weakness from the company's second quarter results. The Select Sector Financial SPDR (XLF) has been trending higher, giving Goldman's stock the benefit of a positive view of the group, coupled with an options market lacking strong feelings. (For more, see also: Goldman Sachs: 5 Trends to Watch in 2Q Earnings.)


The chart below shows Goldman's stock has found support on three occasions around the $210 level, circled in red. Even with the poor earnings results, the stock never came close to touching the lows seen in early April and late June. The stock has also been trending higher since July 2016 and started rising along the bottom trend line, in green, around the end of May, coupled with the upper green line descending from the highs in the stock around $250, creating a symmetrical triangle. The formation is a bullish signal indicating the shares could rise. The stock price is also on the verge of moving above the upper bound of the triangle, circled in yellow. (For more, see also: Goldman Sachs: Stock Picks for a New Era.)

The area where Goldman's stock likely runs into the first signs of trouble is around the $250 level when it meets resistance from its highs last seen in early spring.

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Sector's Influence

The sector has been trending higher as well, helping to lift Goldman, providing positive sentiment. The Financials ETF has recently broken out and has started rising. The chart below of the XLF ETF has a very similar setup to Goldman and is likely to move higher, with Goldman following. 

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When we turn to the options market to look at the future direction of Goldman, over the next six months, we find some deep out of the money open interest all the way down to the $155 level. With the majority of activity around the stock's current price at the $200, $210, $225, $230 and $240 strike prices. 

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The activity at the $155 puts is likely just speculation since the options trade at just $0.59. Below is an options table we've recreated with pricing, open interest and calculated the notional values at the levels with the most activity for the month of January 2018. The distribution of the puts and calls strike prices are relatively even regarding the distance from the stock's current price, along with the total notional value, indicating there is not a strong view on the future direction of the stock. 

With a lack of conviction in either direction from the options market, it would suggest that the technicals are likely to lead Goldman's stock in the coming weeks and months, and ultimately Goldman's price direction being dictated by the overall sentiment of the group. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.