Don't Bank on a Goldman Sachs Rally

 | Apr 18, 2017 | 10:49 AM EDT
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Goldman Sachs  (GS) gapped lower on the opening this morning, so a fresh look at the charts and indicators is warranted. GS has been under its declining 50-day moving average line for about four weeks and nearby support is limited. Let's see how nasty this might become.

In this updated daily chart of GS, below, we can see the lower open for GS in reaction to its disappointing earnings release. GS is making a new low for the move down, and is below the declining 50-day moving as noted earlier. The rising 200-day moving average line is below the market but it is the closest it has been in over five months.

The On-Balance-Volume (OBV) line peaked at the end of February/beginning of March and shows that sellers of GS have been more aggressive with heavier volume on days when the stock has closed lower. In the lower panel is the 12-day momentum study, which does not now show a bullish divergence, but today's decline to a new low is likely to yield a higher low from this indicator. A bullish divergence now could set up the possibility of a rebound perhaps next month.

In this weekly chart of GS, above, we can see that it is above the rising 40-week moving average line. The 2015 high around $220 to $210 was resistance on the way up and should act as support on the way down. The weekly OBV line has been retreating for the past six weeks while the Moving Average Convergence Divergence (MACD) oscillator crossed last month to a take-profits sell signal.

In this Point and Figure chart of GS, above, we can see a possible downside target of $184, based on the recent consolidation pattern.

Bottom line: GS made a small distribution pattern in December through February and we are seeing the result of that selling. GS is likely to be soft in the short-run and retest the $210 area. It might rally next month if a bullish divergence materializes. The next rally attempt should be monitored closely for clues about whether GS will make a more serious top in the third quarter.

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