Confluence Resistance in Goldman Sachs GS – Will it Hold or Break?

Aug 4, 2010: 2:40 PM CST

For those of you watching or trading Goldman Sachs (GS) shares, there’s a key overhead resistance level right here that you need to watch for a clue to whether GS will continue this upward rally, or falter at the dual resistance price here.

Let’s take a look and see what levels to watch on the chart for a break… or hold of resistance.

A quick glance at the chart shows us two chart indicators coming together at the $158 level:

The all-important 200 day SMA rests currently at $158.16

The 50% Fibonacci retracement as drawn rests at $157.99 ($158.00).

Though you have to look closely to see it, daily volume has declined almost every day price has rallied from the mid-July spike.  That’s a bearish non-confirmation as price tests overhead resistance.

Keep in mind that charts give us clues, but do not determine price moves – buyers and sellers in aggregate do that.  Charts are helpful for locating opportunities, prices to enter, place stops, and then exit.

Also, we can anticipate and trade moves based on what we thing the broader market participants will do.

For example, those who believe Goldman Sachs will hold resistance here will short-sell (or take profits) here at the $158 level.  Those who are short will then likely place stops closely above overhead resistance at $158 or wider above $160.

So, if buyers continue to push prices higher, we will enter a “Popped Stops” positive feedback loop above $158 and $160 as those bears who short-sold unsuccessfully are forced to stop-out of their positions, which means they are buying-back shares to cover… this at the same time buyers are purchasing shares for a breakout trade above resistance.

So, we can establish an “IF/THEN” statement like the following:

“$158 and $160 is confluence overhead resistance for Goldman, so one can expect at least a pause or downward move to develop here.

However, IF that downward move does not occur, THEN we can expect a higher pop in prices above $160 because price will be squeezing the shorts of the bears, resulting in a buy-impulse higher.”

It’s the classic Mark Douglas principle – look for points on the chart where price either has to smack into resistance and come down, or break powerfully through it – either way, it gives a trade to those willing to join on the side of the winning team, be it bulls or bears.

Given that the S&P 500 also rests at key resistance at the 1,120 to 1,130 area, what happens to one (holding resistance or breaking through it) will likely happen to the other!

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

2 Comments

2 Responses to “Confluence Resistance in Goldman Sachs GS – Will it Hold or Break?”

  1. JeffreyLin Says:

    very nice corey: “Keep in mind that charts give us clues, but do not determine price moves – buyers and sellers in aggregate do that. “

  2. JeffreyLin Says:

    very nice corey: “Keep in mind that charts give us clues, but do not determine price moves – buyers and sellers in aggregate do that. “