Financial stocks as a sector of the S&P 500 had a lousy year in 2018, to say the least. One of the worst large-cap stocks within this space was none other than banking giant Goldman Sachs (NYSE:GS). While the stock so far remains under distribution, the selling increasingly looks to be overdone and GS stock seems ripe for a meaningful bounce.
When looking at potential trading and investing ideas I find it invaluable to get an idea how a sector or stock is trading relative to the overall market, other sectors and other stocks. Significant relative weakness or relative strength over a prolonged period of time can often offer wonderfully high-probability contrarian or counter-trend trading opportunities.
GS Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
To gain some perspective on where Goldman Sachs shares currently stand, let’s take a look at the multiyear weekly chart. Here we see that GS stock’s drop in 2018 has allowed it to mean-revert back to the blue multiyear support line.
This mean-reversion move lower began to take old after the stock overshot on the upside in early 2018. From a momentum perspective, note that the weekly MACD momentum oscillator is not notably oversold.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Zooming in closer on a daily chart, we see that GS stock in November began to break below the so-called “neckline,” as marked by the blue horizontal, of a major head and shoulders topping pattern. The sharp selling pressure over the past couple of months allowed the stock to just bout reach the downside target of this ominous chart pattern.
As a result of the weak 2018 stock performance, note how this stock’s intermediate-term moving averages are now all sloping lower. While this does not mean the stock can’t see sharp rallies (in fact it is my base case that we do see sharp rallies), through this lens any sharp rallies will be capped.
In relative terms, GS stock has been a weakling too versus the financial sector as we can see from the red line in the top pane of the chart. It is my bet however that both the relative and absolute weakness of this stock will soon abate and lead to a tradeable bounce.
Once GS stock completes a good bullish reversal and closes above the $175 area on a daily closing basis, a next upside target becomes the $190 area.
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