In Tuesday’s broader market selloff, the downward press was once again led by underperforming sectors and industries. Broker dealer stocks such as Goldman Sachs Group Inc (NYSE:GS) showed renewed weakness, bringing GS stock back to -16% on the year.
Unfortunately, while the broader stock market is oversold through a lens of a few weeks and even months, it likely won’t be able to make a sustained bounce until stocks like Goldman Sachs show better bullish reversals.
Active investors and traders would be wise to closely watch GS stock for exhaustion selling, followed by bullish reversals.
Although the late-January lows in the S&P 500 still look to have been meaningful and should lead to a better oversold bounce still in coming weeks, underperforming pockets of the market such as transportation, financials, housing and biotechnology stocks are yet to signal better upside momentum.
This holds particularly true for biotechnology stocks as represented by the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) and the financials sector as represented by the Financial SPDR (NYSEARCA:XLF). Neither of these pockets saw strong enough bullish reversals in January and remain at risk of seeing lower lows still.
On Jan. 11 in this very column, I warned that shares of Goldman Sachs would see lower lows still before odds of a better bounce improve. GS stock then briefly bounced for one-and-a-half days and then proceeded to drop 8.5%, making new 52-week lows.
GS Stock Charts
On the longer-term weekly chart, we see that GS stock has now broken well below the previous horizontal line of support but has also reached a next layer of support in the low $150s. Momentum oscillators such as the MACD continue to point lower and are not yet signaling any positive divergence from price, which we would need to see for a more sustainable bounce in GS stock to take hold. Through a six-month lens, I still think GS stock has room lower into the $130s, although likely not in a straight line from here.
On the daily chart, we see that Tuesday’s 5% drop in GS stock marginally pushed it below the late January lows on an intraday basis.
One simple but effective way to gauge a stock’s strength/weakness through a multiweek lens is by using a 21-day moving average. On the chart we see that last week GS stock once again found resistance at its yellow 21-day moving average and that the stock has not managed to hold above this moving average since early December of last year.
As long as Goldman Sachs cannot hold above this moving average it is still too early to buy it for a multiweek bounce. Once the stock can show some better strength, however, an upside price target back into the mid-$170s looks probably before selling pressure then may once again resume.
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