Goldman Breaking Out Ahead of Earnings

Goldman Sachs' shares surged to their 2010 highs on Thursday with buyers showing confidence in the company ahead of its first-quarter report.
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Updated with closing share price.

NEW YORK (

TheStreet

) --

Goldman Sachs'

(GS) - Get Report

shares appear to be building up some upside momentum ahead of earnings season.

Year-to-date the stock is only up around 5%, but it's now risen in five straight sessions, and it rallied to a new 2010 high of $180.80 during Thursday's session before pulling back to close 1.8% higher at $179.50. The session's high of $180.80 was also its peak for 2010, and at that level, the shares had bounced a little more than 20% off their near-term intraday low of $147.81 set on Jan. 29.

TheStreet's Jonas Elmerraji says

an "ultra-bullish head-and-shoulders pattern"

is forming and traders are taking notice. The move above $180 is the stock's first since mid-November 2009 on an intraday basis, and Goldman hasn't closed above $180 since Oct. 23, 2009.

The bank stocks sold off for the most part in late January after fourth-quarter reports showed stagnant revenue growth and regulatory rhetoric began to pick up. Goldman shares started to gain ground in earnest in mid-March, along with most of the other bellwether financials, as well as the broad market, which is also sitting at or near highs for the year.

The surge this week continued despite a

mixed reaction

on Wednesday to the company's

annual letter to shareholders

in which CEO Lloyd Blankfein and President Gary Cohn sought to explain certain actions taken during the financial crisis, including the controversy over it getting paid out in full in a credit default swaps controversy with

American International Group

(AIG) - Get Report

, and came off as rather whiny to many observers.

Rochdale Securities analyst Richard Bove weighed in on the advance in Goldman's stock in a research note Thursday, citing a few of the reasons he's been hearing, including that the company has been aggressively buying credit default swaps on Greece.

"The company acknowledged there has been some hedging of its position in that country but indicates that this has not resulted in a large profit," Bove says. "Hedge fund traders argue that if Greece falters further, Goldman will have a large profit on this position.

Bove, who has a buy rating and a $200 price target on Goldman shares, also said technicals may be playing a part in the move with the $167-$168 level, which the stock has closed above for more than a month, established as a support line. He added that traders shorting the stock may have been shook out.

"

The theory is developing that the shorts have been unable to break the stock and the buying is coming in," he writes.

Short interest in Goldman

more than doubled to 10.3 million shares as of March 15, the most recent date for which data is available, from 4.5 million as of Dec. 15, 2009, according to Nasdaq.com.

Bove also cited two more factors that may be coming into play. He says the company itself believes the rise in the stock relates to book value, which stood at $117.48 per common share as of Dec. 31.

"If the company adds $18 to book value this year, the stock would be selling at 1.3x projected book and this is below trend," Bove says.

The other influence may be the perception that the efforts of Blankfein,

JPMorgan Chase

(JPM) - Get Report

CEO Jamie Dimon, and others to push back against the regulatory tide rising in Washington is working.

"Many industry observers feel that the banking bill will be weak at best and will not constitute a problem for Goldman," Bove writes, adding that he agrees with this view before adding with a succinct summation of his opinion about the trading action. "Whatever the reason, the core fact remains. This is a well-run company, with a very bright outlook, selling at a discounted price. Buy the stock."

Where the stock goes from here in the near-term will be determined by what kind of performance it puts up in the first quarter. There was a data point released Thursday that indicates the company's Investment Banking unit may be a bright spot as

mergermarket

said global M&A activity was up 15% year-over-year in the first three months of 2010 to $477.7 billion.

Goldman is scheduled to report its results for the three months ended in March on April 20. The average estimate of analysts polled by

Thomson Reuters

is for earnings of $4.02 a share on revenue of $11.1 billion in the quarter. That compares with a profit of $3.39 a share on revenue of $9.4 billion in the same period a year earlier, and earnings of $8.20 a share on revenue of $9.6 billion in the fourth quarter.

--

Written by Michael Baron in New York

.