Tuesday, April 20, 2010

What Next For Goldman Sachs Shares and Shareholders?

With global headlines dominated by SEC and now the UK's FSA investigations into Goldman Sachs it's worrying times for Goldman Sachs shareholders. Analysts remain staunch in support of their 'buy' ratings for the company - a contrarian indicator if ever there was one. So should one be a buyer as analysts suggest, sell - if a current shareholder, or hold and see what passes?

Given this is likely only the start of a lengthy and complicated legal trial (which will likely end with nothing more than a fine and a slap on the wrists - but that's easy to say now!) the cloud which hangs over the company will likely keep in check any sharp advance higher - not just for Goldman but for other banks looking over their shoulder. But given this, should such negative events be viewed as a buying opportunity with investors potentially erring too far on the side of caution?

From the perspective of stock price, Goldman was already in long term 'bearish' mode before the SEC investigation news broke with a "death cross" between 50-day and 200-day MAs in February. The subsequent rally which took prices above both of these moving averages hadn't gone far enough to reverse the bearish shift. The February-April rally had also failed to break past the October 2009 high as lead indices had done. This lack of conviction on the part of buyers (also to listen to Analysts) was telling.

Monday's low volume attempt to rally stalled before it got anywhere close to 50-day or 200-day MAs, but buyers were at least willing to step in above major support (and psychological support) at $150. However, I anticipate struggles around $167 if Goldman can make it that far today. Even if $167 breaks there is April reaction low resistance at $170 to pressure before there is a little bit more breathing room back to $185.

Zignals Chart Image

Yesterday's buyers likely jumped the gun and the next move down should see a test of $150. Given there is unlikely to be any resolution to the investigation and only the chance for negative leaks to trickle into the news arena (lets face it, there is no chance any of this will make Goldman look better) the likelihood will be for $150 to break. From there is gets a little trickier. From a technical perspective a measured move down sets a target of $115; at that price it will be trading at April 2009 levels. When the market bottomed in March of 2009 buyers were willing to step in at $70-$90 - with real value buyers grabbing some at key psychological support of $50 at the height of the banking crisis.

I suspect there will be good demand at psychological support of $100 which makes $115 an attractive accumulator target should it be reached; from there it will probably base for a few months before starting its next move back to $190.

Holders of Goldman Sachs' shares are unlikely to stick around if $150 breaks and the chances for a move above $190 is unlikely until the investigation is close to resolution (or until the cost to Goldman is known), so there is little incentive to be a buyer and only marginally more to hold (while prices trade above $150) at current valuation. Setting a Zignals Stock Alert for a cross below $120 should be used to mark it as a potential buy upon further review at that time.

Trading Signals Summary

There were a large number of stop exits but no profit exits from long-side Trading Strategies. Short strategies kicked into action with a number of entries.


Short Confirmation Entry for ORG (Sydney) at AU$16.41

Developing a Strategy

Long Confirmation Entry for T (NYSE) at $26.14

Forex Oak

Short Confirmation Entry for ZARUSD (FX) at 0.1370

Frankfurt High Winners

Long Exit at Trailing Stop for LHA (Frankfurt) at €12.04
Long Exit at Trailing Stop for SZG (Frankfurt) at €66.80

India Oak

Short Confirmation Entry for RNRL (Mumbai) at INR63.13
New Short Target and Stop for ONGC (Mumbai) at INR1000.7 (EoD): Target INR899.2, Stop INR1099.0
Short Confirmation Entry for PGRID (Mumbai) at INR106.7
Short Confirmation Entry for ABAN (Mumbai) at INR1202.4
Short Entry for HROH (Mumbai) at INR1903.8
Short Entry for PFC (Mumbai) at INR256.1
Short Entry for HDIL (Mumbai) at INR293.6

Relative Canada

Long Confirmation Entry for AFN (Toronto) at $35.87
Long Confirmation Entry for NAE.UN (Toronto) at $12.72
Long Entry for PKI.UN (Toronto) at $10.77

UK Golden Brown

Long Exit at Stop for CNC (London) at 37p

UK High Winners

Long Entry for JIM (London) at 124p (EoD) on 19 Apr 10
Long Confirmation Entry for HSD (London) at 175p (EoD) on 19 Apr 10
Long Exit at Trailing Stop for APF (London) at 251p (EoD) on 19 Apr 10

US High Winners

Long Confirmation Entry for T (NYSE) at $26.14

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Dr. Declan Fallon, Senior Market Technician for Zignals.com, offers a range of stock trading strategies for global markets under the user id: ‘Fallond’, ‘ETFTrader’ and ‘Z_Strategy’ available through the latest rich internet application for finance, the Zignals MarketPortal or the Zignals Trading Strategy MarketPlace.

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