Start Q4 Right With Goldman Sachs (GS) Stock

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Shares of banking stocks have taken a beating since late summer as the lack of prospects for a meaningful rate hike or a steepening yield curve looked and continue to look miserable at best. With many broader banking indices around 10%-15% off their summer highs, though, it strikes me odd that shares of Goldman Sachs Group Inc (NYSE:GS) are lower by 20% — particularly as trading volume last quarter likely increased and may be a boost to their earnings (due out Oct. 15).

Beat the BellFrom this perspective, which is somewhat contrarian in nature given the bearish sentiment on banks, GS stock may be a good bet for the fourth quarter.

Just as not all retailers are the same, it is also silly to toss all banking stocks in the same bucket. Regional banks — as represented by the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE) — for example are a much different beast than, say, Goldman Sachs. To wit, in the current environment, while the yield curve is unlikely to meaningfully steepen anytime soon (thus keeping regional banking shares capped), increased trading volume and some capital markets activity may help keep a bid in GS stock.

GS Stock Chart

Looking at a multiyear weekly GS stock price chart, we see that there is lots of price history and support (previous resistance) around the $173-$175 area (blue box), which Goldman once again revisited this week.

However, at the same time GS broke its 2012 uptrend, which through this lens arguably limits the stock’s upside around the $200 area, or about 25 points (15%) above Wednesday’s close. The technical pattern possibly taking shape since late 2014 is a head-and-shoulders formation that tends to have bearish implications but can also lead to sharp rallies, one of which I think could unfold in the fourth quarter.

Goldman Sachs GS weekly chart
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On the daily chart, we see that on Tuesday, GS stock pierced below its August lows on an intraday basis but by day’s end managed to recover most of the losses, leaving behind a bullish reversal candle. Momentum oscillators such as the MACD as a result formed a higher low but remain deeply oversold.

Tuesday’s intraday bullish reversal was followed on Wednesday by further buying, which for now confirmed Tuesday’s lows as an important near-term inflection point.

Goldman Sachs GS
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Active investors could use Tuesday’s lows near $168 as an area to trade Goldman Sachs stock against on the long side with an initial upside price target around the $184 area. A last resort stop-loss should be Tuesday’s lows, at the latest on a daily closing basis.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/goldman-sachs-group-inc-gs-stock-trade/.

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