Goldman Sachs Update (by Leaf_West)

By -

I couldn't find my cheque book so I thought I would send Tim a nice big post full of Elliott Wave references … anything to put a smile on his face.  Cheers and happy New Years to all of you Slopers.

I'm like a moth to a flame when it comes to GS … I probably spend way too much time on this stock for the amount of money I have made on it in 2011.  Having said that, it is an important stock and is a bell weather stock in the financial sector.

Most traders think that until we fix the problems in the financial stocks, the market will be muted in its attempt to really make a sustainable move higher.

I saw some dark blue candles on GS's 10-min chart late in the day today and that sucked me in to taking a close look at all of the charts.  What did I see?  Read on and see for yourself …

Even though it was the 10-min chart that sucked me in, let's start this analysis the proper way by looking at the long-dated charts and then work our way in tighter …

GS Weekly Charts

GS_Dec 27, 2011_weekly_01

The above weekly chart shows that GS has recently registered some dark blue candles … that tells us that the trend strength lower is at an extreme, and that typically that means the end to the down trend is near.

Take a look of the candles around the weekly low put in around the end of 2009 … the current candle action does look similar in a lot of ways.  Early in December, price poked above the moving average, and that is a level to watch here in the weeks ahead.  That price is at $97.90 right now.

In 2008/2009, nine red candles were registered before price "flipped" green and started a new trend higher.  The current period has seen seven candles …

The other thing to note is the new momentum high that was registered in late October … that is implying a retest of the October price high at a minimum and possibly higher.

GS_Dec 27, 2011_weekly_02

Does it make sense that GS is trying to make a bottom here … well I like to see price retrace into that pivotal 50% – 78.6% area on pull-backs, and that is what GS has done on the weekly chart.

So by definition, price is in a normal area of support and is showing that the down trend is losing its power.

GS 135-Minute Charts

GS_Dec 27, 2011_135min_01

Does GS have enough momentum to make it down to the projected target zone of $76.19 – $82.62.  that would take out the mid-December double bottom and actually take out the $84.27 low from Oct.  The weekly chart doesn't look like it has enough left in it to get down there however.

GS_Dec 27, 2011_135min_02

When we extend the most recent waves lower we get a projected target zone of $84.76 – $81.94.  That comes in right around that Oct low … that would be a better low for price.  A small undershoot of the Oct low could get the last weak hands out of the stock and allow it to start a move higher.

GS 60-Minute Charts

GS_Dec 27, 2011_60min_01

I always like when I find a strong move in price down or up, as that is typically the 3rd wave of a 5-wave structure.  When you find these apparent 3rd waves you can try and counter-trend trade the 4th wave bounce (that is ok for a 60-min wave structure but not a 3-minute structure) and then the last push lower.

That 5th wave should mark the low for a trend reversal … that is what we are looking for here in GS.

Some people may argue that the bounce since Dec 19th is a new trend higher … I doubt that mainly due to the look of the push lower into the Dec 19th bottom … it just looks too much like a 3rd wave to me.

However, I did mark the chart for the possibility of a push higher – the target for the push higher would be $96.56 – $98.55.

To me, it looks like there is some unfinished business lower here … the overall market squeezing higher makes it a little complicated however.

GS_Dec 27, 2011_60min_02

I put a retracement grid on the move lower …. price has a lot of work to show that a new trend has started.

The move lower off of the Dec 22nd high has a corrective look to it however … it has made a classic ABC move lower so far.  that implies that when the 60-min candles flip green again, that would be a signal to get long.

Let's see if the 10-min charts agree with that sort of scenario …

GS 10-Minute Charts

GS_Dec 27, 2011_10min_01

 The move lower off of the Dec 22nd high does indeed look corrective … this is the chart that hooked me into looking at GS a little deeper.  Dark blue candles in a projected target zone imply that price could be finished its move lower here.

That doesn't look ideal from the perspective of the weekly chart … but it is what it is.

GS_Dec 27, 2011_10min_02

A smallish pick-up in volume the past couple of days has all the smell of a late Dec puke fest by retail holders who want to sell and recognize some tax losses.  GS ended 2010 at $168.16 and has declined 45% so far in 2011.  Lots of tax losses for everybody …

GS_Dec 27, 2011_10min_03

Interestingly on the above 10-minute chart, the DI indicators are telling us that a move higher might in fact be near.  The -DI has broken below its prior swing low, and that is a sign that the real down pressure is now over.  The only thing that is needed to "show" that price can go higher is for the +DI indicator to take out its swing high level.

GS 3-Minute Chart

GS_Dec 27, 2011_3min_01

A pretty brutal day on what started as a pretty bullish day for the market.  Again, a reveral in trend typically starts with divergence in a stock's indicators/price.  That is followed by a break of a significant trend line, and then next by a successful retest of the structure low.

That is really the first time traders should look to go long on a reversal trade and in this case GS.

Before I finish with my GS analysis I thought I would throw in some GANN work …

GS 60-Minute GANN Box

GS_Dec 27, 2011_60min_GANN_01

From the GANN box above, the $91.50 area is a key level of support and $96.00 a key level of resistance.

GS 60-Minute GANN Fan Lines

GS_Dec 27, 2011_60min_GANN_02

The Fan lines show that price is right on a support level right here … the next level of support is $91.75 if it can't hold right here on Wednesday.

GS_Dec 27, 2011_60min_GANN_03

Often you see price just hug the Fan lines incredibly well … that was the case with GS since last Thursday.  If price can't move away from this resistance line to the downside, then you can expect price to break above resistance.

When one of the GANN Fan lines is overtaken, price typically moves to the next level … That implies a move to $96 if price can get going here soon.

One last chart … here is a 30-minute Point and Figure chart …

GS_Dec 27, 2011_30min_PnF

I highlighted in yellow the area of support with the most x/o's … that area of support is $89.50 – $90.50.  GS closed Tuesday at $91.90, so support is not that much further below.

That should about do it for GS … on the weekly, price may be showing that we are coming into an important area where the trend could be reversing.  That is the important take away from this …

The short-term chart is less conclusive, but there is a chance that price will follow the market higher into the New Year.  I am calling for a pull-back Wed/Thursday in the market but then a push higher after that into next week.  Watch to see what GS wants to do.

Cheers … Leaf_West  (visit me at my blog site …