Goldman Charts Look Toppy

By L.A. Little of Technical Analysis Today.

Goldman Sachs (GS) has been one of the best-performing large-cap financial stocks following the equity collapse last year.

It hit a low in November 2008 at roughly $47. Since then, it has worked higher and higher, topping out at $193. Why do I say this is the top? The reason is simple: We now have a confirmed change in trend. (For definitions of my technical terms, click here.)

Recognizing a Trend Change

Trend changes occur when swing points are broken. Any time this happens, you want to decide whether it is a suspect or a confirmed trend change. Here's a three-month candle chart of GS.

GS Confirmed Downtrend

ProphetCharts

Note that the Oct. 28 close is lower than the prior swing low. More importantly, note that volume has expanded, and that we have closed under the prior swing low (the new low has 13.5 million shares as compared to the 9.2 million shares recorded at the prior swing low). That is a confirmed trend change.

The result is that the short-term trend changes from bullish to sideways at best, and potentially to bearish. We will not know if it is a bearish trend, however, until a lower high occurs. Given that the high is $192 and GS is trading $20 lower, a lower high is likely. Additionally, if we examine the sector chart, the Financial Select Sector SPDR(XLF) has also turned lower.

XLF Rising Wedge

ProfitCharts

From this, you can see two problems: (1) a rising wedge that has broken and (2) an island top that signaled a reversal that is likely more than just a small pullback.

What Is the Downside Target?

When you have the left side of a chart to work with (the equity has previously traded at these prices before), an examination of the swing points with an eye toward volume confirmation and nonconfirmation is key. Let's look at two charts from Goldman -- a weekly chart (intermediate-term time frame) and a daily chart (short-term time-frame) to find the most likely price target.

(On Thursday around 11 a.m., shares of Goldman Sachs were trading $2.93 higher to $175.09, up 1.70%.)