How I’m Trading Goldman Sachs (GS)

04/19/2011 8:00 am EST

Focus: STOCKS

Corey Rosenbloom

Founder and President, Afraid to Trade

Shares of the controversial bank are being pressed lower following new Congressional allegations. The charts show the critical support level and downside targets in the event that support is broken.

Goldman Sachs (GS) appears to be in trouble before Congress again; or at least before a Senate panel.

What might that mean for the stock? Or more specifically, what current price level should we be watching as a critical pivot level between buyers and sellers?

Here is the simple, but critical short-term pivot level to watch in GS share prices:

chart
Click to Enlarge

Getting right to the point, it’s the $155 area that is a prior price pivot level (important) and the 38.2% Fibonacci retracement as drawn ($155.09).

Taking it a step beyond, the 200-day simple moving average (SMA)—a key reference point between buyers and sellers—rests just above at $157.11.

Notice how price held the 200-day SMA as support in March and then snapped under it as news broke (on Thursday) that Senator Carl Levin suggested Goldman Sachs may have misled investors and Congress. Ouch!

News aside, the chart-based “if/then” statements seem to play out this way as the chart stands right now:

“If the confluence support at $155 holds, then all is well with price.”

However, “If sellers push price under $155, then look for an immediate decline to test the next support zone at $150.”

Anything under $150 puts shares on a collision course for downside targets of $142.50 and then $135 (simple prior price lows).

For fun, I’ve also drawn a potential head-and-shoulders (H&S) pattern formation with neckline at $155 or $150, depending on your criterion (strict or not-so-strict).

If we take the H&S neckline at $155 here, then to get the price pattern projection target, we take the distance from the top of the head ($175) to the neckline ($155) for a distance of $20.00.

We would then subtract that $20 from $155 to arrive at a downside target $20 lower at $135.

Magically, that also happens to correspond with the August 2010 low, which is already a distant downside target as mentioned above.

So for now, watch $155 in Goldman Sachs very closely. Failure for buyers to hold this level opens the door to $150, then $142.50, and then a full H&S target to $135.

By Corey Rosenbloom, trader and blogger, AfraidToTrade.com

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