Thursday, July 21, 2011

Trade Update: GS

We tiptoed into Goldman Sachs yesterday with 25 shares at $133.70. I explained why I thought this might be capitulation selling with the one-month chart there. To summarize it comes down to having a bounce after a down session under very heavy volume. On July 19 we got heavy selling volume as the shares dropped all the way down to $125.50, yesterday we got the surge back up. This down up pattern is what you look for as an early warning indicator. The heavy selling volume by itself is not enough as you can see on the three-month chart above.

Notice the consecutive days of extreme selling volume in May. One day was over 20 million shares the following day was roughly 15 million shares. We got the volume but no bounce. On Monday we got the heavy selloff and yesterday we got the bounce.

Actually I intended to short Goldman Sachs when it went below support at $130. But then we got the big push upward on Tuesday which surprised me. Look at the last two days of trading on the five-day chart above. You can see where the shares gapped all the way down to $125.50 before recovering. As you can see below $130 has provided support for the past two years. But support is never a line it's a zone and it appears as though that zone has not been yet breached.

So, did Goldman Sachs just bounce off of support? There is no way to tell right now. The first bullish task for Goldman Sachs is to get above its 50 day moving average. The stochastic is in our favor as you see it moving up with the red line accelerating away from the blue line. But remember we don't trade the momentum indicators we trade the stock price. Right now the line in the sand seems to be $130. We have our stop put in at $127.50 to give some wiggle room. For now we have done all we can do, the rest is up to the market.

No comments: