How to Play Goldman Sachs' Breakout

 | Aug 08, 2017 | 8:48 AM EDT
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We reviewed the charts and indicators of Goldman Sachs Group Inc. (GS) a month ago, and we concluded that, "GS needs to prove it to me -- I want to see strength above $230 and strong volume. A close below $215 would weaken the picture."

Jim Cramer, in an article earlier on Tuesday, remarked how the stock has been on a tear over the past few days. 

On Monday, GS did indeed close above $230; however, volume did not set any records. Does that mean we are halfway there? Maybe. But we probably should reexamine our charts and indicators to see this is a go or a no go situation.

In this daily bar chart of GS, above, we can see that prices have broken out above the highs going back to April. Prices are above the rising 50-day moving average line and above the rising 200-day moving average line -- two positives.

As noted above, the volume remains muted and the daily On-Balance-Volume (OBV) line has been flat since late April. GS has improved in price since early June, but buyers of the stock have not been aggressive. A "W" is a "W", but older chart watchers like myself like to see volume increase in the direction of the trend.

We have a two-month uptrend established, but aggressive buying is not powering it. The trend-following Moving Average Convergence Divergence (MACD) oscillator has turned up from above the zero line, generating an outright go long signal.

In this weekly chart of GS, above, we can see that prices are now above the rising 40-week moving average line. The weekly OBV line is moving up from a June low, and the MACD oscillator has narrowed towards a potential crossover and go long signal on this timeframe.

In this Point and Figure chart of GS, above, we can see the upside breakout, with the trade at $233.83 and the longer-term potential upside price objective of $258.61. But we can also see some overhead resistance in the $236-$245 area.

Bottom line: we have an upside breakout on our bar chart and our Point and Figure chart. Aggressive traders could go long GS here and on a shallow dip to $230 if available. A rally to the $250-$260 area is possible, and hopefully volume will increase. Meanwhile, a close below $220 will turn the chart bearish.

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