GS Chart – Touched Bottom Trend Line

I charted Goldman Sachs (GS) before the markets opened on January 25, 2010 after GS closed on Friday at $154.12.  I was brought to this chart after I read the bullish story on GS in today’s issue of Barron’s.  While the story about the fundamentals sounds intriguing, the chart gives some more insight on how to play GS in the shorter term.  GS has been on a slide lower for the past four months.  Friday saw GS hit its trend line of lower lows.  This should give room for GS to bounce some or possible continue to fall at a slower decline than the past few weeks. 

One of the biggest indicators to watch to see which way GS goes is the 200 day moving average.  GS fell below this line on Friday, after holding support there on Thursday.  One could look at this line two different ways.  GS has had a reversion to the mean so the downside might be limited from here or since GS couldn’t hold support here there could be more downside as GS overshoots the correction.  I drew two horizontal lines also.  The first one looked like it’d hold, but also broke on Friday.  The lower one is where GS found and held support Friday.  If this line breaks we could see GS trade down to the $140 range before finding a new area of support.

If GS can pull itself back up from these lows it will still be in its descending trading channel until it breaks above the $175 range.  To get there GS will have to climb above its 200 day moving average and then its 50 and 100 day moving averages.  Each will offer another chance for a bounce higher to fail.  I’m waiting a little longer before I get turn bullish on GS.  I don’t mind missing the first $5 up to have a stronger conviction it’s not a dead cat bounce.  I want to see how the 200 day moving average works for or against GS too and I’d like to see a move out of oversold on the Williams %R indicator as a final confirmation.