Intraday Gaps Triangles and Breakouts in the Aftermath of GS Stock Selloff

Apr 26, 2010: 11:50 AM CST

With Goldman Sachs (GS) frequently mentioned in the news in the wake of the fraud allegations, intraday traders have sought to profit from the swings and price movement that has occurred since GS fell so sharply on April 16th.

Let’s take a look at the ‘wakes’ or aftermath of the sell-off, failed ‘bounce,’ sucker gaps, and current breakdown from the descending triangle that formed.

(Click for full-size image)

It’s common for new traders to think “After a sharp sell-off, I’m going to buy the stock at the lows to catch a bounce and profit when the stock snaps back higher.”

While that’s common thinking and sometimes it works, it didn’t work (except for the quickest of intraday traders) for the week after the Goldman Sachs sell-off.

What did happen were two ‘sucker’ gaps – or ‘head-fakes’ that likely trapped traders who were caught in the wrong side of the move.  I wanted to highlight the difficulty of trading in post-major news events in a stock.

Monday opened with a down-gap of roughly $5.00, so any trader thinking we were going to continue the sell-off to new lows was trapped in the immediate rally and gap fill in the next 30 minutes – price completely filled the gap.

The next day, April 20th, we saw Goldman Sachs report better than expected earnings, sending the stock surging this time higher by roughly $5.00… but the gap filled in the first 10 minutes, leaving traders who bought in the pre-market and right off the open holding the bag as price filled the gap.

We then saw a gentle downward drift as volatility (range) contracted, and a clean descending triangle (note the trendlines) formed.

Traders often take a position when price breaks out of the trendlines near the apex, or convergence (crossing) of the dominant trendlines.

That happened today, and the breakout range expansion has sent Goldman stock plunging again, this time sharply down off a gap from the open.

Goldman Sachs is always an interesting stock to study (chart-wise) because it has so much public attention and participation.

Guard any positions you put on after a major news event hits a stock, and be ready to abandon your position or bias if price sends warning signs or ‘tricks’ you as Goldman did for some traders last week.

Corey Rosenbloom, CMT
Afraid to

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