Shares of many banking and brokerage stocks initially rallied last Friday on the back of the better-than-expected jobs report, only to quickly fade and lose much if not all of the gains. Among those that saw such a bearish reversal were shares of Goldman Sachs Group Inc (NYSE:GS), which now offer active traders a well-defined risk/reward trade on the short side.
Major economic data prints of central bank policy announcements have a tendency to see a sharp initial reaction that often reverses before long. As such, investors typically shouldn’t chase these kinds of initial reactions higher or lower; instead, they should wait for a few hours to see what the true reaction will look like.
From a macro perspective, Friday’s reaction to the “good” January jobs report was a continued surge in the dollar and interest rates, while commodities, utilities and other assets sensitive to the dollar and interest rates got punished.
Interestingly, however, while most of those dollar- and interest-rate-sensitive assets finished the day in the same direction as the initial reaction, banking and brokerage stocks reversed and left nasty bearish price action behind on their daily charts.
A good example of last Friday’s bearish reversal in this group of stocks is seen on the NYSEARCA Securities Broker/Dealer Index below. Note the long tail on the daily candle left behind, which shows the intraday bearish reversal and rejection of its December 2014 highs.
For shares of Goldman Sachs — and for the broker/dealer index, for that matter — the six- to 12-month view continues to look promising and should ultimately see these stocks release to fresh multiyear highs.
GS Stock Charts
After a sharp multiyear rally, GS stock managed to crawl back up to its 2009 highs near the $195-$200 area, which is supported by an important higher low in 2011/2012. Given the duration of this horizontal resistance line (red dots), however, it may well be that GS stock needs to consolidate for another while before resistance finally clears.
On the daily chart, we then see the bearish reversal of GS stock from last Friday. Goldman Sachs essentially rejected its year-to-date highs in the low $190s in a violent manner and on an uptick in volume, but found support at day’s end on the 100-day simple moving average (blue line).
Active investors and traders now have a very well-defined area of resistance (i.e., Friday’s intraday highs near $191.50) to lean against. Should GS stock drop below the 100-day moving average without a quick bullish reversal back up, then a near-term move into the high $170s looks probable, which in turn would likely bring about a better buying opportunity.
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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.
