Charting the Support Breakdown in Goldman Sachs GS

Apr 18, 2013: 12:15 PM CST

With Goldman Sachs (GS)breakdown under the $140 “Round Number” Reference level today, let’s take an updated look at the chart and identify the new key levels to watch.

First, the Daily Chart and initial support break:

We’ll see shortly that we can develop a Bull/Bear Game-Plan for short-term trading tactics (management) in terms of real-time price interaction with the $140 and $138 level.

First, we’ll take a look at the bigger picture uptrend and potential reversal in structure that would signal a new downtrend, particularly if price holds and closes under the current area – in sum, price hangs over the edge of a price support cliff.

The Momentum Oscillator peaked in mid-January while price traded in an uptrend into the $145 area.  From there, price continued to peak just shy of $160 per share while we can see a visual loss of momentum or clear negative divergence.

On the initial downswing from the high, sell-volume spiked while buy-volume declined relative to the recent past, suggesting a potential change in structure or market character (volume weaker on rallies and stronger on declines).

Price then broke the rising 20d EMA to fall toward the rising 50d EMA, only to break that level cleanly in March.

A vicious ‘bear trap’ (a break under the 50 EMA that results in a sudden burst of buying pressure higher, trapping those who triggered aggressive short-sale positions) developed that thrust price into the $150 level – note the clear decline in buy-volume on the ‘trap’ or short-squeeze event that propelled price from $140 to $150.

We’ll focus our attention now on the recent sell-swing in price that was met with a surge in sell-volume along with a new momentum low.

The “risk” is that the short-term trend continues to reverse to the downside which opens the price toward a sell-pathway toward lower support targets including the $125 region which is the current confluence of the rising 200d SMA and horizontal support line as drawn.

Before we turn extremely bearish on Goldman, let’s take a look at a short-term Fibonacci Grid that highlights the key level for this week:

Starting with the December swing lows near $115 and $125, we see two Fibonacci Retracement grids drawn to the $158.50 high on February 19, 2013.

The two spots that draw our attention are the $141.60 level (most recent “bear trap” spike low) and the current $137.50 region which is the current intraday low.

Note the classic interpretation of how Fibonacci Levels work – one looks for a support bounce off a reference level, but if a particular level fails as support, then a trade (or pathway) opens up to the next lower level.

If price doesn’t “bounce” or retrace higher from the $137.50 confluence support region, then an automatic downside targets the $132 level.

A future failure into $132 opens up the Daily Chart pathway toward the $125 confluence – again these are bigger picture concepts and levels.

Individual trades are likely to develop on the lower frames for swing and intraday traders to take advantage of support or breakdown – or even retracement – events that occur in the context of broader frame ‘pathways’ to targets.

Let’s take a final look at the intraday chart to note recent support shelves and breakdowns, and focus our attention on the current level:

I drew highlighted boxes to reflect intraday support shelves that corresponded with positive intraday divergences, but price would later break under each ‘shelf’ level to trigger a quick intraday breakdown opportunity which continued the intraday downtrend in motion.

The most recent shelf developed briefly into the $147 level, and the break under that level resulted in the quick sell-off toward the prior $142 support level.

Wednesday’s breakdown sets the stage for the “Battle for $138.50” which is the Fibonacci Cluster Support level that plays against a potential reversal of structure on the Daily Chart that opens the stock to lower levels.

Keep focused short-term on the interaction between $138 and $140 and keep in mind that sellers have already entered breakdown trades on the support break and have placed logical stop-losses above $140, resulting in a ‘cluster’ or pocket of stop-losses which will trigger on a break higher above $140 and particularly $142 (the green region).

On the other hand, a failure to rally back above $140 (and especially a breakdown under $138)  could result in the continued selling pressure both from buyers/bulls taking profits from prior positions – and buyers/bulls taking stop-losses from recent trades – which would join with short-sellers putting on new positions for an expected breakdown.

Monitor real-time activity relative to these areas and the reversal signal that will develop on the chart in the event that we see a sustained break under $138.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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