The celebrations following Wednesday’s FOMC statement pushed stocks, commodities and bonds higher, and it seemed like the U.S. dollar was the only thing in the marketplace taking a beating. Everything rallied in the equity world, including the financial sector, where I now see clearer setups on the long side.
That includes a big opportunity in investment banking giant Goldman Sachs Group Inc (NYSE:GS).
While the multiyear risk-on parade unabatedly continued Wednesday, it is worth reiterating that those who blindly held risk positions through the FOMC statement acted more like gamblers than investors. Just some friendly advice: In the longer run, a more risk-averse posture heading into major central bank announcements can make a big difference in portfolio returns.
On Monday, my daily stream of consciousness took us to the uncertainty heading into Wednesday’s FOMC meeting and pointed to financials — as represented by the Financial SPDR (NYSEARCA:XLF) — as a sector we should hop aboard should we see an upside frolicking in stocks. Specifically, I said:
“Active investors this week should be watching the financial sector, for if the XLF can break past the $24.60 area to the upside, then new multiyear highs shouldn’t be too far out in the future — and the SPY will likely also bump higher.”
Shares of Goldman Sachs, part of the XLF, rallied about 0.9% on Wednesday, and by so doing followed through on the latest rally since earlier this month.
GS Stock Charts
From a multiyear perspective, GS stock continues to push up against a multiyear resistance area around $190-$200. From a momentum perspective, the Relative Strength Index while still stuck in neutral has begun curling up somewhat in recent weeks as the financial sector has shown notable relatives strength versus the broader market. If financials want to push higher, then GS stock almost certainly will be part of the fray.
Closer up on the daily chart, we see that the 200-day simple moving average (red line) actually served as a good measure of support since late last summer. The stock routinely mean-reverted back to this moving average, and even when undercutting it in January/February, Goldman Sachs quickly bounced back above it.
The latest semi-test of this moving average took place on March 10th, which also served as an important higher low versus the late January lows and increases the chances that GS stock is now on its way to fresh multiyear highs.
Active investors and traders could look to buy GS stock on a break above Wednesday’s highs at $193, for a move to a first upside target between $200 and $205. For risk management purposes, any bearish reversal of Wednesday’s rally would quickly nullify the setup and call for more consolidation time.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
