Goldman Sachs (GS) - Get Free Report reports third-quarter earnings results ahead of Thursday's opening bell. Market players are eagerly awaiting the report to confirm that credit meltdown issues are no longer affecting this financial powerhouse. Simply stated, it's highly unlikely this particular operation is going to disappoint investors in its quarterly ritual.
That optimism didn't stop influential analyst Meredith Whitney from downgrading the stock on Tuesday morning, triggering a selloff that spread throughout the financial sector. Unfortunately, yesterday's market gurus believe their press releases too intently and tend to overshoot their knowledge base at key turning points. Just ask former PaineWebber analyst Walter Piecyk about his ill-timed $1,000 call on
in late 1999.
As usual, I'll rely on the price charts to uncover my version of the truth rather than depend on Wall Street's self-absorbed talking heads. To that end, let's examine Goldman Sachs, past and present, to see what we can expect after Thursday's market-moving event.
The company came public in May 1999, opening in the lower $50s. It more than doubled in price over the next year, finally topping out at $133 in October 2000. The stock then joined the rest of the equity universe in the tech-driven bear market, dropping to $58 in late 2002. It bottomed at that level and entered a historic five-year bull advance.
The broad uptrend proceeded in two distinct phases: From the 2002 low into early 2006, the stock retraced the 75-point range of the prior bear market. It finally broke out to an all-time high and took off like a rocket, adding 100 points in the next 16 months. At that point, the long uptrend's easy money was gone.
The weekly chart shows a volatile two-year topping pattern that posted a marginal new high in November 2007. The good times were short-lived -- the stock rolled over in a cascading selloff that gathered downside momentum in September 2008. It finally bottomed out at $47.41 in November and began a choppy and uncertain recovery.
Goldman hit a key inflection point in March of this year when it rallied above the 200-day moving average. Volatility finally ebbed after months of near-violent price action, and the stock eased into a stable uptrend that's now testing round-number resistance at $200. Note how this level corresponds with start of the most vertical phase of last year's selloff.
As you can see, price has completed a 100% round trip in a "V"-shaped recovery from last year's big crash. This bullish activity marks a major step in a larger-scale recovery that should eventually target the all-time high at $250.70. However, the uptrend has pulled into a natural location for the start of a rest and consolidation phase, ahead of a push over $200.
Price action in the last six months shows a healthy uptrend that shows no signs of letting up. Accumulation is very strong despite the big move, pointing to solid institutional sponsorship. There are a few technical signs that relative strength is waning, increasing the odds for a trading range, but they're minor compared to the strongly positive pattern.
The stock is still printing higher lows and higher lows, which is the primary requirement for a sustained uptrend. Until that situation changes, it isn't wise to draw negative conclusions about the outlook into 2010. Of course, things might change after Thursday's report, but for now let's assume this is a market leader that will stay a market leader into the foreseeable future.
What type of price action after the report would point to the start of a trading range or intermediate correction? The 20-day simple moving average, currently above $184, is a good place to watch, because a selloff through that level would confirm a failure of the breakout over the September high (blue line). This violation might attract more aggressive short-sellers than Whitney's prima donna downgrade.
The Oct. 2 low at $175.60 is the next defensive line during any "sell-the-news" reaction. A breakdown through this price level would end the bullish string of higher lows in place since July. In turn, that action would dim the technical outlook considerably and expose price to a selloff that tests $170.
Of course, Goldman could easily blow away expectations and head higher. Look at the rising-highs trend line going back to June. A rally could spike into $194 and still not break the barrier. Technically speaking, this is a major momentum pivot. In a nutshell, a rally above this line should yield a vertical spike into, and perhaps through, resistance at $200.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product that outlines his charts and analysis. Farley has also been featured in
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
Farley appreciates your feedback;
to send him an email.
click here to sign up for Farley's premium subscription product, The Daily Swing Trade, brought to you exclusively by TheStreet.com.
TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.