Trade Update: GS

Despite the official numbers Goldman Sachs actually closed down about two dollars today, having gapped up and broken out to $142.20 and faded all day back to $140.73. Forget everything you know for a moment about the Golden Godfather of syndicate banking, Goldman Sachs Co. GS, and try to see what I see it's 52 week chart.

Notice how it bounced off of $135.00 back in August of last year and how it did the same thing again recently at the $130.00 level. It was $129.50, on Tuesday of last week to be exact. In fact after the gap up this morning Goldman Sachs is resting just above another support level, namely $140.00 which it broke in early September of 2010.

Now take a look at the stochastic and MACD for Goldman and you can see the the stochastic is down in the 20s having crossed over and turned up. Meanwhile the MACD lines are exactly crossing over and turned up from a deeply oversold zone. It is rare that you see such a perfect set up in both the stochastic and the MACD at the same time which makes this a compelling trade.

Now take a look at the same chart this time with just the Bollinger Bands shown. You can see where the shares bounced against the bands and rode them down all the way from $145.00. But then something happened to the Bollinger Bands, they broke. Notice how the bottom band opened wide suddenly. That rarely happens and usually results in a reversal which is what we got.

Of course there may be some problems. For one thing the volume is light, and todays gap up was probably fueled by the overall market gap this morning, on the news that yet again Greece would be bailed out. Greece could fall into the sea and it would have no effect, but it was just an excuses for the floor specialists to buy some shares for themselves before the open, and then sell into the gap that they just created. That's show biz!

No one has a crystal ball but to me the line in the sand, the $140.00 level. We have staggered our stops at $139.25 and at $137.25 to avoid being whip-sawed by random price movements, but $140.00 is the line we will defend against. If it breaks down we will get stopped out for a small loss, otherwise enjoy the ride.