Goldman Sachs Will Head Higher Again -- Eventually

A pullback in Goldman Sachs could set the stage for a renewed bull run and propel the stock back to recent highs.
By Gary Morrow ,

Goldman Sachs (GS) - Get Report  is set up well for more upside, but investors would be wise to wait for shares to pull back first.

Goldman Sachs surged more than 3.5% on Friday, putting it at the top of the Dow Jones Industrials gainers list. This powerful high volume surge extended the stock's rally off the October lows to 17%. Goldman Sachs closed out last week well above its 200-day moving average.

Yesterday the stock extended Friday's breakout in the early-going but finished the session near the lows. In the near term a pullback may be needed before GS can mount a challenge of major resistance near the $203 area. For patient bulls, this will provide a low-risk buying opportunity.

In late October and into last week, GS struggled with resistance near the September high. Upside trade tailed off dramatically as the stock bumped up against the $192 area. The stock was in need of a catalyst to move past this area, and Friday's interest rate surge provided exactly that. GS blew through the September highs with a huge upside gap on the bell and remained well-bid all session. This volume surge drove shares past a very damaging breakdown gap left behind back on Aug. 21 as well as the stock's 200-day moving average. In one fell swoop, GS blew through multiple layers of heavy resistance -- a very impressive move to say the least.

This week GS is moving back into overbought territory as measured by its daily moving average convergence/divergence. A healthy pullback before the stock makes a run at the $203 area would be a positive development.

Investors should focus on the $195-to-$192 area as shares begin this consolidation process. This key support zone includes GS's 200-day moving average, the September/October highs and Friday's huge breakout gap. A fade back to this zone followed by a basing period will set the stage for a renewed bull run, which could eventually result in a retest of the 2015 high of $218.75.

On the downside, a close back below the current November lows of $187.68 would be a clear warning sign that the basing process will take much more time.

For another take on Goldman Sachs, check out "Goldman Sachs' Rally Is Over, and You Should Sell the Stock Now."

Click here to see the below chart in a new window. 

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Loading ...