The past few trading days in the stock market saw correlation among stocks spike even higher than usual, which meant that most stocks were jerked back and forth along with the index movements rather than as a result of any idiosyncratic news. Case in point, shares of Goldman Sachs Group Inc (NYSE:GS) over the course of just a few trading days dropped about 10%, before sellers got exhausted and GS stock bounced on Tuesday
To wit, GS stock for me is what I refer to as a thematic bullish play for Q1 and likely beyond.
Why? Aside from a rising interest environment, the company will also likely benefit from an increase in merger and acquisition activity in 2018. Furthermore, if markets see more volatility in 2018 (which is my base case) this should also aid the firm’s trading business.
So, when GS stock fell 10% over the past few days did this cause me to freak out? Nope.
If the drop in the stock had anything to do in particular with Goldman itself or even with the financial sector then yes I would have been more concerned. However, when stock market algorithms broadly dump shares because of a volatility spike in the indices, then all else being equal my thematic bull case for GS in this case has not changed.
GS Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Reviewing the multiyear weekly chart reminds us that GS stock through much of 2017 consolidated below its 2007 highs (blue line), which finally last month (January 2018) led to a breakout.
Although this current week of trading is far from over, so far the stock is holding this previous area of technical resistance as support and the weekly candle displays a long bullish tail.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving over to the daily chart, note that the selling pressure in recent days merely pulled GS stock back to the previous diagonal line of resistance, which also roughly lined up with the blue 100-day simple moving average. Tuesday’s bounce off this level off support is a promising start and now makes the $240-$242 area a good reference level of technical support.
Any break below there, particularly on a daily closing basis, would be reason to stop out of long-side swing trades. Upon a stop loss trigger, the stock would have to show us a fresh bullish reversal to signal new long opportunities.
Check out Anthony Mirhaydari’s Daily Market Outlook for Feb. 7.
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