Key Price Compression Levels to Watch in GS

Aug 18, 2010: 2:50 PM CST

Shares of Goldman Sachs stock (GS) remain trapped between two key price levels as traders await a breakout from this range.

Let’s take a focused look at the daily chart of Goldman Sachs (GS) and pay specific attention to the two key levels to watch on the chart.

Taking a quick look, we see price compressed specifically between resistance at the 200 day SMA (and 50% Fibonacci retracement) at $157.50 and support from the 50 day EMA at $146.90 ($147 for reference).

Those are the key levels to watch for a larger range breakout, but there’s an even smaller range that short-term and day traders should be watching.

It’s the compression between the 38.2% Fibonacci retracement at $151 and the 20 day EMA at $149.30 (call it $150 for a round-number reference) and the same 50 day EMA price at $147.

Thus, the “IF/THEN” statements in GS may be the following:

“IF price breaks overhead short-term resistance at the $150 level, THEN expect a play up to the next higher resistance at $157.”

or

“IF price fails to hold support at the $147 level, THEN expect a further sell-off and break of support to target a retest of the $130 to $135 level.”

As a trader, you’re often better by assessing charts in terms of “IF/THEN” statements/expectations as opposed to “Well, there’s support at $147 so Goldman’s going to go up so I’m buying.”

What if it doesn’t?

If you want to dig a little deeper than the simple levels I’ve referenced here, then look at the classic negative momentum divergence that undercut (disconfirmed) the swing high at the $157 level.

The divergence and push into confluence resistance  set-up a good short-sale opportunity with a stop above confluence resistance at the $158 or $160 area to play for a retest of daily EMAs at the $150 to $145 area Рwhich is where we are now.

Now we’re at another “technical decision node” where price can either bounce upwards off support here – placing a stop under $147 – or slice through the support (shorts would place their stops above $147 in that case).

What will happen?

The proper question should be “what do I expect and where should I locate my stop/what is my risk?”

Or wait for a breakout signal – above $150 or beneath $147 – to put on a trade and join the winning side – bulls or bears – rather than trying to make an educated guess as to whether bulls or bears will prevail.

Either way – watch these levels for clues as to the next likely move ahead in Goldman Sachs (GS) shares.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

1 Comment

One Response to “Key Price Compression Levels to Watch in GS”

  1. Ayush Khatri Says:

    Corey,

    Your blog is phenomenal! I am a relatively new trader and have been learning a lot recently by reading your blog and various others. I would like to get your opinion on PCLN. I initated a couple of shorts at the 300 level and again at the 310 level today. Today's trade was good as PCLN dropped $6 in EOD trading. I would love to hear your thoughts on this stock. Techically speaking, it has had an impressive run since July 2 and a huge gap up after earnings. RSI is extremely overbought on the daily and weekly and the slow stoch is showing overbought signs as well.

    Seems to me that this stock wants to go and test the 270 level pretty soon . I highly doubt it will close the gap at $230 given the HUGE gap up (unless the market tanks and takes this down as well). I would love to hear your feedback and analysis.

    Thank You for your hard work !