How to Play Goldman Sachs after Earnings

• Posted by Greg Harmon
• on July 19th, 2011

Heading into their earnings release at 8:00 am on Tuesday morning Goldman Sachs (ticker: $GS) looks like they need to hit not just a home run but a grand slam to avoid a disastrous fall into the abyss. They have the entire financial sector stacked against them and are reporting after one of the darlings in the sector, JP Morgan, beat estimates and was sold. Goldman did their best to lower expectations, talking of difficult market conditions, weak client activity and falling risky asset prices. Even outside of the influence of other companies and the sector in general, the price action in Goldman Sachs looks horrible. Below is the monthly chart as of Monday’s close. Notice the descending trend line resistance and that the price is below all of the Simple Moving Averages (SMA’s) most of which are sloping lower.

Goldman Sachs, $GS, Monthly

The Relative Strength Index (RSI) is trending lower and the Moving Average Convergence Divergence (MACD) indicator is growing more negative. This is a downside set up on the monthly scale and with the price between the 145.28 and 121.98 Fibonacci retracement levels this establishes the range for the next month

Goldman Sachs, $GS, Weekly

or so. Support lower comes at 110 and then 93. Moving to the weekly chart above shows a downward sloping channel since mid 2009 with the bottom of the channel at the 121.98 Fibonacci level mentioned above and the cluster of SMA’s just above the 145 level at 152-156. There is also some resistance at the

Goldman Sachs, $GS, Daily

140 area. But the RSI and MACD support more downside on this timeframe as well. On the daily timeframe you can see it is resting at the 100% retracement of the move higher from July 2010 to January 2011 at 128.52. It has a RSI that is tending lower and a MACD that has just crossed down. Everything about the price action on all timeframes suggest that it will move lower. To summarize, there is support to the downside at 128.52 and then 121.98, and resistance at 139.50 and then 145.28 and 147.50.

But earnings can change all that. And now that Goldman Sachs has reported $1.85 earnings per share against an expectation of $2.30 missing badly. The stock is currently down $3.60 in premarket trading. If this holds up at the open then look for a test of 121.98 to come soon.

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