Goldman Sachs (NYSE:GS) is rallying sharply this morning after a solid Q4 earnings report. But the stock may be running into resistance — let’s look at the charts and see if we can uncover a play here.
Like much of the broad market, GS (and the rest of the financial sector, as tracked above by the SPDR Financial (NYSE:XLF)) rallied hard off the November lows. Simply put, the financials confirmed the rally in the broader market and kept it alive (much in contrast to the technology sector, by the way, which has been lagging courtesy of Apple (NASDAQ:AAPL)).
This morning’s gap higher has the stock bumping into the 61.80% Fibonacci retracement (resistance) level of the move from the 2011 highs down to the 2011 lows. The stock has now rallied about 23% off the November lows without catching a real breath.
Now is as good a spot as any for the stock to rest a little and consolidate.
Looking closer, at the daily chart, we see the November-January rally a little better. Of note this morning is the gap up, which comes following a doji (unchanged) candle yesterday. We need to see a daily close on the chart today to get a better reading of what the candlesticks are telling us, but any weakness today or tomorrow will shape a bearish candlestick formation.
Given the fact that the broader market has traded higher along with the financials, the momentum oscillators such as Stochastics and Relative Strength Index are somewhat less relevant than they might otherwise be. Still, note that these indicators suggest GS stock has been overbought since mid-December.
The sharp rally in recent weeks has now finally brought this stock into good Fibonacci resistance. This fact, coupled with overbought momentum and very ominous-looking daily candles, makes me wary of chasing GS here. On the contrary, any weakness in the stock today or in coming days would set it up as a solid short candidate for a swing trade.