Rare Candlestick Pattern Signals Goldman Sachs is a Buy

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Goldman Sachs (GS) — A good friend called today to lament that he was closing on a mortgage and would have to pay a quarter percent more than he had hoped in his interest rate. Despite warning him for months to “hedge” against that problem in the market, he took a risk and got burned.

Rising rates may be bad for mortgage borrowers (at least in the short term), but they aren’t bad for financial stocks. Banks make money from the interest rate spread between what they pay on deposits and borrowings and what they earn on loans and investments. Tuesday’s pop in interest rates was good for them and may portend more gains this week.

Goldman Sachs was the leader on the Dow Jones Industrial Average, up 1.4% on rising rates and improving inflation data. What is even more interesting is the candlestick pattern on GS’ chart, called a “rising three methods,” which is a bullish continuation pattern.

This is one of the rarer candlestick patterns, but in our experience, it tends to be very reliable. It has the same implication as a bull flag or pennant, and many times will even look like them. There are four basic criteria for a rising three methods buy signal:

1. An uptrend, which for GS extends from April 15 to June 5;

2. A big green day leading into the pattern, which occurred on June 6;

3. Two or more candles with small bodies within the range of the first green candle, which we saw on June 9 and June 16; and

4. A big candle that opens within the range of the first and closes above the pattern, and that took place on June 17.

Except for a very brief 10-cent trespass on June 10, GS exhibited a classic example of this buy signal. Based on the move prior to the pattern of approximately $8, the initial target is $174, which is in the range of the prior highs made in March. The Fed may be a wildcard though, so be sure to manage your risk.

GS Chart
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John Jagerson and Wade Hansen are the editors of SlingShot Trader, helping investors capture options profits trading the news by using a proprietary 100% news-driven trading platform that turns event-driven pricing inefficiencies into fast profits. Get in on the next trade and get 1 free month today.


Article printed from InvestorPlace Media, https://investorplace.com/2014/06/trade-day-goldman-sachs-gs-3/.

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