Editors' Pick: Originally published March 23.
On Feb. 10, the objective decision support engine allowed us to warn that the selling in Goldman Sachs (GS) had become overdone, and that investors shouldn't sell the stock in the coming days to weeks. We recommended buying shares in the $132 +/-$8 area and predicted the stock would bounce toward $155 +/-$5.
As the following daily bar chart of Goldman Sachs shows, the stock bottomed the very next day, with a gap down open to $138 (just tickling our buying zone), which has been the lowest price seen. Since that extreme, prices have risen, as anticipated, to the $155 +/-$5 zone, testing $159 as the highest price so far. Either the entire bounce is over, or it will be upon one more marginal rise toward $162 +/-$3. Then, a new decline toward the lower green buy box should follow and end the decline from the November swing high.
This test of the low $130s will not end the entire decline of Goldman Sachs, however. Oh no! There are several more severe up/down sequences coming for Goldman Sachs in the months and years ahead, which should eventually bring these "smartest guys in the room" to their humble knees, as chart one in the Feb 10 analysis illustrated, to the vicinity of the 2008 bottom. Yes, that means sub-$50!
Let's ask the decision support question that we use in our live-market Trading Room to see whether objective actions are indicated: "If I had no money in Goldman Sachs, do current conditions indicate buying or selling actions here/now?"
The corrective pattern (highlighted by the yellow box) is complete, or nearly so, and the stochastics are crossing down, again, from lower highs than the wave (4) label. Also, the price just tested and failed at the upper Bollinger Band (purple dashed line). Given all of this, the answer to the question is that selling actions only are indicated. Therefore, if you are long, selling actions mean using sell stops at $152 to protect any long exposure. This will lock in profits from the previous long entry, which was triggered at $140 on Feb 11 (when $132 +/-$8 allowed a 140 entry). If flat, speculators can use selling actions to sell short in this price zone, with eyes on covering shorts toward $138 +/-$3. If already short, hold or add to exposure, using any of these parameters that you feel comfortable with.
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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.