Goldman Sachs Bounces Off Its July Lows

On Friday, CNBC’s Fast Money asked the question “Has Goldman Bottomed Out?” The answer to these kinds of questions is always a “maybe” or a more resolute “perhaps/perhaps not” but I was a bit amused at the reasoning provided for guessing that Goldman Sachs (GS) has reached a bottom:

1. It acted well on Wednesday by going up while the S&P 500 went down aggressively (nevermind all the other days in May when Goldman was a very poor relative performer. In fact, nevermind that GS has underperformed the S&P 500 since its 52-week high back in October.)
2. The Senate passed financial regulation, but some of the more “draconian” measures will not make it into the final bill (betting on government action is always precarious)
3. GS is the smartest company in the world (no comment from me – this one is a layup)
4. GS has reached book value (OK – this actually sounds like a very good reason!)

In the end everyone missed the simplest reason, GS has finally traded down to its July, 2009 lows, a major level of support. This level is also very significant because the S&P 500 bounced from its July lows to go on an extended run for the rest of the summer (I reviewed the July action in a recent post). I like the simplest answers (guesses): so often, technicals trump much of the tidy and intricate logic that we sometimes try to use to excuse our trading and investing actions. Sometimes a stock just is as a stock does.

Steve Cortes was the main proponent of buying GS here, and his upside target is $150. I think that is too conservative: that target only takes GS to the bottom of its last big gap down and barely takes GS much more above book value. I think a traders targets GS to fill that gap and the timing may just happen to coincide with a test of a rapidly declining 50-day moving average (DMA).

Here is the latest read on Goldman’s charts followed by the video segment from Fast Money:

A GS rally faces multiple points of overhead resistance but “should” fill the last gap down.

*All charts created using TeleChart:

Be careful out there!

Full disclosure: long GS

Don’t break 130, target 150