With just about one week to go until earnings from the second quarter of 2013 start to roll in, I am making a list of stocks that I want to follow closely for potential clues to broader-market reaction once the earnings hit the tape.
Front and center on that list is Goldman Sachs (GS), which not only will give me a read on investor sentiment for the earnings season, but being an interest-rate-sensitive stock, GS also should tell me a thing or two about how investors perceive how the recent hike in rates will weigh on the market.
From a lengthened medium-term point of view (around 11 months), note the important line in the sand/on the below chart, dating back to the August 2012 lows.
The support line (blue dotted line) just about coincides with GS’s 100-day simple moving average (light blue line) and currently also isn’t too far below the 50-day SMA (yellow line). The support line currently comes in just around the $151 mark, which once again held as support in late June after Goldman pulled back from the year-to-date highs.
The more often an area of support/resistance gets tested, the more violent an eventual breakthrough it becomes; that might be the most important thing to remember at this stage. It’s too early to tell whether Goldman Sachs will slice through support here in the near-term, but if it does, it might just accelerate the downward press.
Even closer up on the chart, note that the past four trading days of consolidation have created a mini-bear flag of sorts, which also perfectly lines up with the aforementioned support line. A break below it snaps all sorts of support and could quickly throw the stock toward the $145 area.
It’s important not to jump the gun here, as any one-day reversals to the upside would quickly turn this bearish setup in favor of the bulls.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.