Click to EnlargeIf you want an example of a textbook uptrend, look no further than the chart for Goldman Sachs (NYSE:GS). The stock has been climbing ever higher since late-summer 2012, and as we explained in a recent video, we anticipate the trend is going to continue. The stock is currently consolidating because GS was one of the unlucky four financial institutions that didn’t have its capital plan unconditionally approved by the Federal Reserve as part of the latest Comprehensive Capital Analysis and Review (CCAR). Both GS and JPMorgan Chase (NYSE:JPM) were asked to resubmit their plans by the end of Q3 “to address weakness in their capital planning process,” while Ally Financial (NYSE:GKM) and BB&T Corporation (NYSE:BBT) had their plans rejected. We expect this resubmission to only be a small speed bump for GS this year.
Looking at the current consolidation range on GS, we see a pennant — a bullish continuation pattern — starting to take shape. The stock has an up-trending support level starting from the support bounce in late-January and continuing through the support bounce in late-February and a down-trending resistance level starting from the recent high in mid-February and the subsequent lower highs reached in March. We are looking for the stock to bounce up off of support at $150 to eventually break up through the down-trending resistance level that is forming the top of the pennant.
While GS will be releasing its earnings a few days before our April call options are set to expire, we do not plan on being in the trade long enough for that announcement to be much of a factor.
Recommendation: Buy to open the GS April 155 Calls for a maximum price of $2.65.
Click here to receive the Trade of the Day in your inbox every day.
John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.