
Goldman Sachs' Rally Is Over, and You Should Sell the Stock Now
It was only early last month, as Goldman Sachs (GS) - Get Report shares were in the $160s, after having fallen 23% from their June high, that our analysis concluded you should buy Goldman Sachs. The perfect combination of oversold technical indicators, pattern recognition and a bearish sentiment extreme caused the decision support engine to indicate that earlier selling was over, at least for the time being, and that the biggest rally since June was dead ahead. (The decision support engine previously had forecast the earlier selloff accurately, too.)
With the early October forecast of $190 +/-$5, the risk/reward was tilted in favor of the bulls. Now that the stock has achieved that target, buying actions are no longer indicated. In fact, as you'll see in the updated weekly bar chart below, Friday's close at $199.30 could be the extreme high of the entire corrective bounce off $168 in October.
Click here to see the following chart in a new window
Now, if you didn't catch the 10-week, 40-point decline ($210 to $170) from the decision support engine's original sell signal or the more recent five-week, 30-point rise ($170 to $200), don't fret. The next forecast is for a the selling to renew itself at any time. The stock will then travel along path shown by the downward-pointing blue arrow, toward the $137 +/-$8 zone that's in the bright green box, by the middle of 2016.
The reasons are the same as those causing the original sell signal in July, only much stronger. Why? Then, the trend had only just begun to reverse, without the required five-wave impulsive decline that Elliott Wave technicians use to show an increased probability that an upward trend is over. Now, that five wave structure (labeled 1-5 in blue, forming purple 1-circled) can be seen. What's more, the rise off the October low is a corrective three-wave structure (labeled A, B and C of purple 2-circled), which has just reached the Fibonacci 62% resistance level of the previous impulsive decline. That further increases the confidence that the June highs are not likely to be broken.
Additionally, DSE's pattern recognition algorithms created a pink box as the target zone when it issued the signal advising investors to cover their short positions or establish long positions in early October. That box has been fully probed now.
Lastly, Friday's close boosted the stock's price above the upper Bollinger Band ($196.40), which is an extreme that is often too much for ebullient bulls to handle, signaling that late- joining players who missed the long entry near $170 have no more patience to await a pullback and just bought to get into the game.
Friday's price action, viewed on a daily bar chart (not shown here), shows two key technical conditions that fortify the decision support engine's warning that selling action should be considered near Monday's open. First, Friday's daily price bar was a "gap and go," where a stock's price gaps higher, doesn't pull back at all, then rises to close near the high of the day. Second, the daily stochastics went above the extreme overbought 90% threshold. Individually, each of these warnings of herding mania wouldn't guarantee an immediate end to the rally, but taken together, the risk is too high to remain unprotected with long exposure.
Therefore, if you are long, you should place protective sell stops at Friday's opening level of $196. Ideally, try to sell the stock for $200 or more near Monday's open. If you're flat, use these same parameters to establish short exposure, using $215 as the initial place to put protective buy stops on new short positions. If you're already short, these same guidelines are perfect for maintaining and/or augmenting that market stance.
The decision support engine identifies 15 points of upside risk and 60 points of downside risk. That gives the bears a 4-to-1 benefit -- a rare advantage!
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.









