Oops! Goldman Sachs GS Cracks Under 50 day Average

Oct 28, 2009: 3:22 PM CST

Goldman Sachs (GS) – a leading and bellwether financial company – definitively cracked under its important 50 day exponential moving average support today, triggering a classic sell signal.  Let’s see Goldman’s Daily and Weekly chart and see what areas to watch below for support.

So far, the 50 day EMA has held as key support (also giving key buy-in trading opportunities to get long) on each pullback to the moving average.

Many traders also watch the 50 day EMA as a signal of “support” to define trends, in that price being above the average reaffirms the uptrend while a close beneath the average for more than two days signals a possible ‘early’ ending signal to the trend.

Thus, it’s very important to watch whether or not buyers can push price back above this average, and if not, then it would be a major sell signal not only for Goldman Sachs, but perhaps for the broader market in general.

A negative momentum divergence has been locked in place, and the final price high above $190 was preceded by a longer-term (since May) and a shorter term (since September) negative divergence which appears to be catching up with price, threatening to end the uptrend.

A new momentum low has also formed, which has a tendency to forecast lower price lows yet to come.

On the daily chart, the next “stopping point” or support zone would be expected to be the $160 area, which is prior price support, if not $165, which was prior price resistance.

Speaking of $165… let’s turn to the weekly chart.

The 20 week EMA rests at $165.56 and the 200 week simple moving average rests at $163.85.  Thus, we see confluence support at the $160 level for Goldman Sachs.

It seems likely – as long as this is not a bear trap – (which would mean price would break the 50 EMA, lure in short-sellers, and then rise to close back above the 50 EMA immediately, triggering their stop-losses and springing the “trap”), that price is destined to test the $160/$165 level soon.

We’ll need to watch to see if buyers can hold support at $160 and if not, then $150 would be the next ‘stopping zone,’ and beneath that, we would have a confirmed sell signal on the intermediate (weekly) frame which would be terribly negative for GS and the broader market.

Let’s see what happens in the coming days and how price reacts to these critical support levels.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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