The Rounded Reversal Arc into Key Support on Goldman Sachs GS Apr 5

Apr 5, 2010: 10:21 AM CST

Thanks to a reader for pointing out this near-perfect rounded reversal pattern on Goldman Sach’s (GS) intraday chart, which takes price currently into a key “make or break” support level.

Let’s take a moment to see the Rounded Reversal example as well as the key support price that Goldman is challenging currently.

First, the Rounded Reversal as seen on the 60-min chart:

(Click for full-size image)

Using the 3/10 Oscillator (or any similar momentum indicator), we see a negative divergence forming in early March with the continued price highs until the mid-March peak of $178.00 per share.

Negative divergences serve as non-confirmations and are often “take profit” signals, or even “flip and reverse short” signals for aggressive (short-term) traders looking to profit should a potential reversal develop.

Arcs are one of my favorite patterns because the pathway to the future (trading opportunities) are clear should price follow the roadmap (meaning, arc over on the right side similarly to that on the left side).

This example shows us a ‘last gasp’ spike high before price rolled over to test the 38.2% Fibonacci level – ‘last gasp’ spikes are often frustrating and teach us the importance of trade management:

1.  Get the main idea right and don’t let yourself be stopped out by a wiggle (or ‘gunning for stops’) in price

2.  Price patterns that look crystal clear often give a little ‘trick’ like this before the expected move occurs

I’m referring to the price spike on March 23rd back to $178.00 prior to the expected sell-off.  A trader with a relatively wide stop would have been safe (holding short), while a trader with a very tight stop above the prior high would have been unfortunately stopped out at the high.  Keep this pattern in mind.

Where are we now?

We’re testing both the lower Bollinger Band (not shown) and the 38.2% Fibonacci Retracement as shown from the late February swing low of $154.30.

The retracement rests at $169.41, and price appears to be bouncing currently off that level, allowing a potential opportunity for those who want to buy Goldman.  The $170.00 per share level would be a ‘make or break’ spot to expect a bounce here.

For quick reference, here is the daily chart:

The 20 day EMA rests at $171.16, so any bullish break above that would be a confirmation that odds favored a rally back to challenge the $178.00 level.

Under $170.00, we see confluence EMA support at the $165 to $167.50 level as shown.  Any break under $165.00 – thus – would negate any bullish bias for the time being and argue instead for a potential retest of the $155.00 level if not lower.

It’s important to learn as much information as you can from charts, because every chart and pattern you study builds your awareness and experience, adding to your growing store of knowledge as you progress as a trader.

Corey Rosenbloom, CMT
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